Oil on the boil as Iran-Israel tensions escalate, Brent crude hits $92 a barrel

The global oil market was jittery as the fears triggered by the escalation of Iran-Israel tensions pushed the benchmark Brent crude rate to as high as $92 a barrel. This was the highest price level seen since early October, when the war in Gaza had erupted.

Brent crude futures peaked by 2.7% to hit $92.09 per barrel during the mid-trading hours on April 12, before pairing some of the gains and settling at $90.21, higher by 0.52% as against the previous day’s close. The U.S. West Texas Intermediate crude hovered around the $85 per barrel mark.

The fresh jump in crude rate was linked by analysts to the reports that claimed an Iranian strike against Israel was imminent. Tehran had, last week, warned Tel Aviv of a retribution after suspected Israeli strikes on the Iranian consulate in Damascus killed two of its officials.

The speculations of an Iranian strike gained momentum after US President Joe Biden publicly reiterated support for Israel, saying, “We will help defend Israel, and Iran will not succeed.” The remarks reflect how critical the situation is, analysts said, adding that the outbreak of direct Iran-Israel clashes holds the potential to disrupt the international flow of oil.

"If push comes to shove between Israel and Iran, $100 or more is likely," Business Insider quoted market veteran Ed Yardeni as saying.

Strait of Hormuz, a potential chokepoint?

Iran shares its coastline with the Persian Gulf, which separates the country from the Arabian Peninsula. The gulf is home to the Strait of Hormuz, from where one-fifth of the world’s total oil supplies are routed.

An eruption of a direct military conflict between Iran and Israel may lead to the closure of shipping via the Strait of Hormuz, analysts have warned.

The US Energy Information Administration (EIA) describes the Strait of Hormuz as the “world’s most important chokepoint”. Oil flow averaged 21 million bpd, or the equivalent of about 21% of global petroleum liquids consumption in 2022, it said. “In the first half of 2023, total oil flows through the Strait of Hormuz remained relatively flat compared with 2022 because increased flows of oil products partially offset declines in crude oil and condensate,” EIA added, citing the latest available data with it.

The disruption of shipping lines due to the closure of Strait of Hormuz may result in a massive spike in oil prices globally, JPMorgan had warned in a note issued in October 2023, when it was feared that the eruption of Israel-Hamas war in Gaza may lead to a wider regional conflict involving Iran.

"If the conflict broadens to include the closure of the Strait of Hormuz —the world's busiest oil-shipping channel— it would shut down the region's oil trade, supercharging oil prices," it had stated.

Based on tanker tracking data published by Vortexa, Saudi Arabia moves more crude oil and condensate through the Strait of Hormuz than any other country. Around 0.5 million bpd transited the strait in 2022 from Saudi ports in the Persian Gulf to Saudi ports in the Red Sea.

Apart from Saudi Arabia, other Organisation of Petroleum Exporting Countries (OPEC) members including Iran, the UAE, Kuwait and Iraq also use the strait to export most of their crude to the Asian countries.