High tension as the world awaits Iran’s response to our attacks
After the US attacked Iran, major cities increased security as US agencies issued alerts and world leaders encouraged them to get detached.
Oil prices will be in the spotlight in the coming days and weeks as the world awaits Iran’s response to surprise the US attack over the weekend.
Shortly after the attack, oil prices surged to five months high as a escalating Middle Eastern tensions threatened with an all-out war and the possibility of closure in the Strait of Hormuz, a key waterway for transporting oil from around the world.
Prices have fallen backwards as analysts predicted the Strait of Hormuz to close, but it is not possible.
“As of the current situation, closing the strait is definitely not Iran’s greatest benefit,” said David Oxley, chief climate and commodity economist at Capital Economics.
“However, this could change if the conflict escalates and affects Iran’s own ability to export oil,” he added.
Why is the Strait of Hormuz so important?
The Hormuz Strait is an important artery in the world’s energy currents, accounting for around 25% of the world’s seawater oil and about 20% of liquefied natural gas (LNG).
It links the Persian Gulf to the Gulf of Oman and the Arabian Sea, and is essential for exporting oil from major producers such as Saudi Arabia, Iraq, Iran, Qatar and the UAE.
If Iran closes the waterway, it would destroy global oil supply and raise oil prices, analysts said. When oil prices skyrocket, almost all prices rise.
What impact does high oil prices have on consumers?
Since oil prices account for about half the price of gasoline gallons, one of the first to be affected by a rise in oil prices is the price of pumps. But even consumers who don’t drive or use public transport will eventually feel a more expensive oil squeeze in some way, as oil affects the cost of producing and transporting it to local stores.
Douglas Porter, the chief economist at BMO Capital, is estimated to see a rise in crude oil prices rise by about 0.4 percentage points and reduce economic growth by about 0.1 percentage points.
Natasha Kaneva, global product research director at JP Morgan, said the war is already shaking the global energy market.
The US OII price surged from $60 at the end of May to around $75, marking its highest level since last July, representing a 23% jump. “Usually, this surge in oil prices is ultimately felt at the pump, with the average national gasoline price already rising by more than 2%,” she said.
Analysts warn that high inflation and slowing economic growth could also fight the stock market.
Are there alternative routes to the Strait of Hormuz?
There are alternative routes that include the Red Sea, but the available pipeline capacity is limited, Oxley said.
“And we estimate that, given that most oil flows from Iraq, Kuwait and Iran itself cannot be redirected, we estimate that less than 30% of existing oil flows cannot be redirected,” he said. “On the other hand, LNG flows from this region cannot be decoupled. The lack of alternatives to reroute LNG flows has contributed to a sharp rise in natural gas prices since the start of the conflict.”
Will the US get oil from Iran?
According to the US Energy Information Agency (EIA), the US accepts little oil from Iran. In recent years, the US has imported zero barrels per day from Iran. According to EIA, the latest data in 2023, when the US imported just 5,000 barrels per day.
Who gets the most oil from Iran?
China is by far the largest buyer of Iranian oil. Based on tanker tracking data, China increased nearly 90% of Iran’s crude oil and condensate exports in 2023 from 25% in 2017, the EIA said. Condensate is processed from hydrocarbon liquids from natural gas production, which are primarily used to make fuels like gasoline and to facilitate heavy, coarse transport.
Medora Lee is a money, market and personal finance reporter for USA Today. mjlee@usatoday.com and Subscribe to our free daily money newsletter Personal finance tips and business news every Monday to Friday.
