Oil and gas prices rose on Tuesday after the Iranian Revolutionary Guard threatened to set fire to any ships attempting to pass through the Strait of Hormuz.
With the Strait of Hormuz accounting for around 20% to 30% of the world’s oil and gas transit, any prolonged disruption to transit could have a deep impact on energy prices, as reflected in price gains on Tuesday.
Konstantinos Chrysikos, Head of Customer Relationship Management at Kudotrade, said: “Shipping companies are rerouting vessels and avoiding the area. Markets are now actively pricing in the tangible risk of a major supply disruption should the tensions become protracted.”
In another development, Saudi Arabia has closed its largest oil refinery as a result of Iranian attacks, which is likely to have knock-on effects if the conflict continues and oil flow is curtailed.
Brent Crude oil was 4.3% higher at $80.97, while US WTI rose 4.4% to $74.39.
“Energy costs continue to mount as Lebanon has been drawn into the conflict and Gulf states are still reeling from a barrage of Iranian strikes,” explained Susannah Streeter, Chief Investment Strategist, Wealth Club.
“Iran is retaliating to attacks from Israel and the US and is now threatening to set fire to ships using the crucial Strait of Hormuz. Given that it’s an essential route for around a fifth of global oil and gas supplies, this has sent energy prices even higher. LNG wholesale costs had already jumped after the world’s largest LNG export plant was closed following a strike by an Iranian drone.”
Although oil prices are significantly higher than where they closed last week, the gains don’t yet reflect a prolonged major disruption to global oil supply. This is likley to be priced in if the conflict rumbles on.