Escalating Oil Prices Following US-Iran Conflict and Strait of Hormuz Closure Threatens
Capital City Buzz: New Delhi - With concerns mounting following the US bombings on Iran, Brent crude oil prices saw a substantial 2% jump early Monday, reaching $78.53 a barrel - the highest level since January. However, it eventually settled at $77.45 a barrel, inching up by 0.57%. The looming threat of the Strait of Hormuz closure only serves to exacerbate prices, as the Iranian parliament has approved shutting down this crucial oil transit route that facilitates about 30% of the world's oil trade and 20% of global LNG shipments.
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As the Iranian government contemplates a possible move that could antagonize Tehran's neighbors and trade partners, the decision to close the waterway now rests with the country's national security council. This uncertainty has cast a shadow over global oil markets and set geopolitical tensions soaring.
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For India, the implications are significant, with 40% of India's crude oil imports projected for FY25 passing through the Strait. Additionally, 53% of India's LNG imports originate from Qatar and the UAE, according to the International Gas Union.
"A total shutdown of the Strait of Hormuz would constitute a major disruption to global oil flows, with approximately one-fifth of global oil trade flowing through this narrow channel. Such an event would likely trigger a sudden, dramatic increase in crude prices, driven more by fear and perceived scarcity than actual supply shortages. However, the current market response has remained relatively measured, with crude benchmarks ranging between $70-80 per barrel," Dr Kapil Garg, Oilmax Energy founder and MD, explained.
"The escalating tensions, nevertheless, present a palpable threat to India's energy security. Given the country's heavy dependence on oil supplied via the Strait, a disruption could elevate import costs and create supply vulnerabilities, impacting the broader economy and energy landscape," Garg cautioned.
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However, the government maintains an optimistic stance, expressing confidence in India's oil-marketing companies, which allegedly have supplies ready for several weeks.
The Strait of Hormuz plays a crucial role in the world's oil trade, handling approximately 20 million barrels of crude oil and petroleum products daily, accounting for about a quarter of global maritime oil trade and around one-fifth of global oil and petroleum consumption. Major oil exporters such as Saudi Arabia, UAE, Iran, Kuwait, and Bahrain use this strategic channel, with the strait also facilitating about one-fifth of global LNG trade, mainly from Qatar.
A closure of the strait would result in a dramatic surge in oil prices, escalated shipping costs, and prolonged supply delays worldwide. India, along with China, Japan, and South Korea, would be particularly affected, facing increased energy import costs and supply uncertainties, putting broader economic and energy security concerns at the fore.
- Despite the escalating tensions surrounding the Strait of Hormuz, individuals might seek to divert their attention towards less volatile activities, such as participating in sports, as an attempt to reduce feelings of uncertainty and unrest.
- As the international oil market experiences potential disruptions due to the Strait of Hormuz, various industries could face financial challenges, including the sports sector, which relies heavily on stable and predictable economic conditions to operate efficiently.
