Markets were jittery as the escalation of conflict in the Middle East disrupted shipping and energy exports through the Strait of Hormuz. This narrow strait between Iran and Oman normally transports about one-fifth of the world’s crude oil and liquid natural gas. In practical terms, oil equivalent to approximately 20% of world demand passes through the strait every day. With the effective closure of the waterway in the last seven days, about 140 million barrels of oil, which meets 1.4 days of the world’s demand, have been prevented from reaching international markets.
In addition, Qatar’s energy minister told the Financial Times that he expects all Gulf energy producers to cut exports within weeks, a move that could push oil prices above $150 a barrel, according to an interview published on Friday.
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What do the experts say?
“The worst-case scenario is developing before our eyes,” said John Kilduff, a partner at ReCapital. “I think the predictions of $100 a barrel will come true.”
The combination of the commodity cycle, the high gold-crude oil ratio, and rising geopolitical risks suggest that crude oil may be entering a stronger phase of the broader commodity cycle.
“With gold near $5,100 and a ratio of around 62, crude oil makes sense at about $82 per barrel. If the ratio falls to 55-45, oil prices will mathematically move into the $95-$115 per barrel range, assuming gold is broadly market-oriented and market-oriented, significantly, significantly.” Research on SAMCO Securities says. Domestic brokerage JM Financial said that every dollar increase in crude oil prices increases India’s annual import bill by nearly $2 billion. Prolonged tensions could raise logistics and marine insurance costs, disrupt Gulf shipping routes and widen the trade balance. The INR faces a near-term depreciation bias with possible RBI intervention through foreign exchange reserves. The transmission mechanism is obvious: higher oil prices increase the risk of inflation; Higher inflation raises bond yields; And increasing yields reduce the equity value multiplier.
If violence increases the threat to the Strait of Hormuz, the risk premium may become structural rather than proportional. Even the possibility of a partial disruption at this critical point could add $20-$40 per barrel to the geopolitical premium, potentially pushing crude oil back into the $95-$110+ range, beyond just the direct mechanical impact of Iran’s supply cuts, Equirus Securities said in a report.
While oil and gas prices have risen this week, they remain well below the highs seen following Russia’s invasion of Ukraine. There were signs on Friday that the early oil market was shaking off some of its composure, as Brent crude rose above $90 a barrel, according to a Bloomberg report, extending their gains this week by more than a quarter.
Still, executives at the four major trading houses, who did not want to be named, said the market was still too optimistic about the potential impact of a prolonged closure of the Strait of Hormuz, and predicted prices would reach $100 within days if the conflict did not ease.
((rejection: The recommendations, suggestions, opinions and views given by the experts are their own. (It does not represent the views of The Economic Times.)
