Since the United States and Israel launched strikes against Iran a fortnight ago, oil prices have risen by approximately 40% and they are set to climb further as the conflict enters its third week. With the Strait of Hormuz effectively shut by the Iranians and Middle East oil export hubs increasingly coming into the crosshairs of this war, the supply disruptions are setting up oil for major price increases.
The IEA’s announcement that about 400 million barrels of crude oil currently held in national reserves will be released onto the market has done little to quell unease in international oil markets.
The global energy agency said reserves held in the Asia-Oceania region would be released immediately while the reserves in Europe and America are slated to enter global markets at the end of this month. These supplies could provide some relief, but lasting stability is likely to remain elusive until the conflict comes to an end.
The 40% surge so far seen in oil markets has driven prices to levels last seen in 2022 when Israel and the U.S. attacked Iran and triggered an Iranian response that closed Hormuz and roiled oil markets.
The Strait of Hormuz is a key shipping route through which a fifth of global oil transits on its way from the Middle East to global markets. Any disruption to this route shocks the market and triggers price increases. Trump has called on western allies to deploy their warships so that this key gateway can remain open to international shipping.
The U.S. president revealed that he would announce which countries have agreed to join the coalition deploying warships to escort vessels through the strait. That announcement is expected this week.
Additionally, Trump has threatened that additional strikes could be targeted at Kharg Island, especially the oil export infrastructure of Iran. Previous attacks conducted on this island on Saturday targeted what the U.S. called military installations on the island. The Iranians responded defiantly and vowed that any attacks on that location would trigger retaliatory strikes from Tehran.
When Kharg was targeted over the weekend, Iran responded by hitting a Fujairah oil terminal in the UAE. This shows that Tehran has the capacity and will to make good on its threats to target the Middle East oil hubs of its neighbors that it says are aiding the U.S. in conducting combat operations against Iran.
This month, supplies of oil available on global markets are slated to reduce by 8 million barrels from the volume that is usually available daily. This reduction is due to shipping disruptions in the Strait of Hormuz and production cuts made by Middle East producers in light of the security risks posed by the war.
Reports indicate that Trump has rejected calls by U.S. allies in the Gulf region to start talks aimed at securing a ceasefire agreement with Iran. Conditions in global oil markets could therefore get a lot worse before they get better, and U.S. entities like Berkshire Hathaway Inc. (NYSE: BRK.A) (NYSE: BRK.B) with interests in the energy sector will be tracking the developing events closely.
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