Financial Markets Remain Calm Regarding Israel and Iran for the Time Being. Potential Developments Could Trigger shifts in their sentiments
A Urgent Warning: The Strait of Hormuz Threat Peaceful Markets
The world's financial markets have remained surprisingly placid despite the intensifying hostilities between Israel and Iran. But remember, tranquility may turn into turmoil if this feud challenges the safe pathway of oil known as the Strait of Hormuz.
This narrow waterway, sandwiched between the coasts of Iran and Oman, serves as one of the world's most significant oil chokepoints.
Oil prices soared on Tuesday as traders monitored the possibility of oil supply disruptions. US oil prices jumped 4.28%, wrapping up at approximately $74.84 per barrel – the highest closing price since January. Brent crude, the global benchmark, surged 4.4% to $76.45 per barrel.
So far, there have not been any substantial disruptions to the global oil flow. Yet, if oil exports halt or if Iran attacks the Strait of Hormuz, the international oil market might face an existential crisis.
The strait serves as a crucial interface for oil and liquefied natural gas exports from the Middle East to the global market. It links the Persian Gulf to the open sea and facilitates the transfer of about 20 million barrels of oil each day, according to the US Energy Information Administration.
Rob Thummel, senior portfolio manager at energy investment firm Tortoise Capital, guessed that a potential disruption in the Strait of Hormuz would drive oil prices skyward towards $100 per barrel. He emphasized that a functioning strait is "absolutely vital" for the world economy's good health.
Fears of a strait shutdown have previously emerged alongside other Middle East conflicts. On Monday, oil prices plummeted by more than 1% as traders made bets that oil would still circulate during the current Israel-Iran clash. However, prices bounced back during Monday evening and Tuesday, after President Donald Trump indicated a more pessimistic stance, hinting at the possibility of employing US military assets to target Iranian nuclear facilities.
Bob McNally, president of Rapidan Energy and a former adviser to President George W. Bush, claimed the risk of disruptions to oil production and flow is somewhat higher than the market apparently perceives. He cautioned, "I'm not as confident as the oil market seems to be that this is going to be over swiftly or it's not going to grow to include oil and energy. My view is, this remains a deep-seated situation."
The Joint Maritime Information Center (JMIC), a global shipping organization, issued notices on Monday and Tuesday warning they're vigilantly keeping track of the scenario. On other occasions, if Iran blocks the Strait of Hormuz, it could face fierce international backlash.
In a report released on Tuesday, the International Energy Agency stated, "Closure of the Strait, even temporarily, would have a massive impact on global oil and (natural) gas markets."
A Sharp Focus on the Strait of Hormuz
Iran stands accused of harboring ambitions to barricade the strait during the conflict. Though Rob Thummel speculated the probability of such a move is low, it remains a concern. The stratum plays a vital role in transporting about one quarter of the world's oil supply.
Closure of the Strait, even for a short term, would create havoc in global oil and gas markets, as stated by the International Energy Agency.
Politics and sports, although seemingly unrelated to the Strait of Hormuz crisis, could indirectly impact the situation. For instance, geopolitical pressure on Iran could intensify if international sanctions are imposed, similar to pressure exerted during sports events by boycotts or diplomatic measures.
On the other hand, the ongoing geopolitical tension could rekindle debates about the role of oil-rich countries in the global sports sponsorship landscape, especially in high-profile sports like football, where Middle Eastern teams and leagues are significant financial contributors.
