U.S. gas prices are likely to rise above $4 a gallon after Iran reportedly closed the Strait of Hormuz, a day after President Donald Trump announced a two-week cease-fire.
Iran’s semi-official Fars news agency reported that Iran has responded to heavy Israeli shelling of Lebanon by shutting down a vital trade route. However, White House press secretary Caroline Levitt said those claims were false and the route had been reopened.
A key element of the ceasefire is to keep the strait open while negotiations take place over the next two weeks. It is unclear what will happen if the strait is closed, as Iranian media reported.
About 20% of the world’s oil passes through the strait, which was effectively closed for weeks after the United States and Israel attacked Iran on February 28.
The shutdown caused “the largest supply disruption in the history of the global oil market,” according to the International Energy Agency.
But even if the Strait remains open, gas prices could continue to rise. This is because it takes time for the supply chain to recover after oil supplies are reduced. We need to eliminate shipping delays and rebuild inventory.
The IEA said there could be disruptions to oil supplies in the future.
Pump relief may be delayed
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A two-week ceasefire announced on April 7th allowed shipping through the strait to resume. According to Reuters, Iran wants to charge tolls for the passage of ships and said the military may coordinate passage.
Still, transport details have not yet been provided, the BBC reported, and shipping companies may be reluctant to send ships to the strait even if it reopens.
About 130 ships passed through the strait per day in February, according to United Nations Trade and Development. The BBC reported that three tankers used it on April 8th.
More than 3,000 vessels use the strait each month. Most of them transport crude oil, refined oil (the equivalent of about 20 million barrels of oil per day), and liquid natural gas from docks in the Persian Gulf to ports in China, India, Japan, and South Korea.
Some crude oil shipments go to Europe, and about 4% of crude oil exports go to the Americas.
According to the Wall Street Journal, ship tracker Marine Traffic showed hundreds of tankers waiting to depart in the Persian Gulf.
Hundreds of other container ships and cargo ships are anchored in the Persian Gulf, the magazine reported.
The strait is one of three major waterways that enable the export of natural gas and oil from the Persian Gulf to Europe and North America. Others include the Bab el-Mandeb River and the Suez Canal. Iran’s southern border runs along the length of the Gulf.
Prices rise due to ship delays in Strait of Hormuz
According to the Insurance Journal, dozens of oil refineries and other energy infrastructure in Iran and other Middle Eastern countries were damaged in airstrikes during the war.
Drone attacks and other attacks have disrupted operations at energy ports in Saudi Arabia, the United Arab Emirates, Oman and other countries, the paper said.
Contributors: Rachel Barber, Zach Anderson, Cybele Mays Osterman, Christopher Kang, Michael Loria
SOURCE USA TODAY NETWORK REPORTS AND INVESTIGATIONS. Reuters; U.S. Energy Information Administration. international energy agency
