Oil prices are expected to surge when markets open on Monday, following US-Israeli strikes on Iran and the effective closure of the Strait of Hormuz. US crude is projected to rise by 11% to over $74 a barrel, up from $67 on Friday, according to broker IG. The jump comes as Opec+ agreed on Sunday to increase output by more than expected to cushion the impact of the conflict.
Iran’s Revolutionary Guards reportedly told ships on Saturday that passage through the Strait of Hormuz was prohibited, effectively shutting the key choke point. About $500bn of energy trade and 20% of global oil supplies pass through the strait annually. A tanker was attacked in the strait on Sunday, and at least 150 vessels carrying crude, LNG and oil products have dropped anchor as traffic slowed to a near standstill.
Analysts at Barclays said the oil price could reach $80 a barrel in the event of a material supply disruption. Royal Bank of Canada analysts warned that regional leaders had indicated $100-plus oil was a clear and present danger. A jump in wholesale oil prices is expected to feed through to UK petrol prices, which averaged 132.9p a litre for petrol and 142.4p for diesel, according to the AA.
London’s FTSE 100, which hit a record high on Friday, is expected to fall by about 0.5% on Monday. Global investors are seeking safe-haven assets, with gold up 2.25% to nearly $5,400 an ounce. The closure of the Strait of Hormuz would disrupt shipments from Saudi Arabia, the UAE, Iraq, Kuwait and Iran, leading to shortages and higher energy prices.
Opec+ countries, including Saudi Arabia and Russia, agreed to raise output by 206,000 barrels a day in April, above the expected 137,000. However, analysts said the group had little spare capacity except for Saudi Arabia and the UAE, which will struggle to export oil until navigation in the Gulf returns to normal. Ports in Dubai, Bahrain and Oman have suspended operations, and the cost of insuring ships in the region has risen.
