Analysts sound alarm as crude oil soars due to Iran war

Analysts warned on Monday that there was no precedent for the oil price rise, as the Middle East crisis deepens fears of prolonged production shutdowns and disruption to shipping through the strategically vital Strait of Hormuz.

Oil prices were on track for their biggest single-day jump on Monday, before significantly paring gains, following a new wave of US and Israeli attacks across Iran over the weekend. Oil deposits were among the targets.

International reference Brent crude oil futures with delivery in May was trading almost 12% higher at $103.59 a barrel on Monday morning, while the U.S. West Texas Intermediate Futures with April delivery were last seen priced 11% higher at $100.84.

Brent futures had risen as high as $119.5 a barrel earlier in the trading day, while WTI hit a session high of $119.48.

Neil Atkinson, former oil director at the International Energy Agency, said the effective closure of the Strait of Hormuz is something energy markets have never seen before. Unless something changes very soon, “we are in an unprecedented and potentially transformative energy crisis,” he told CNBC on Monday.

Countries in the oil-rich Middle East region have begun to reduce crude oil production. Iraq and Kuwait have already begun to shut down production, and analysts warn that the United Arab Emirates and Saudi Arabia may also be vulnerable if the Strait of Hormuz remains closed for an extended period.

“Although there are oil reserves around the world, the point is that if this closure of the Strait persists, those oil reserves, if they are used, will be depleted and we will be in a situation where, with oil production really closed, in Iraq and possibly in Kuwait and perhaps over time even in Saudi Arabia, we will be in a crisis like we have never seen before,” Atkinson told CNBC’s “Squawk Box Europe.”

Asked what this could mean for oil prices, Atkinson responded: “Sorry, we’re entering the realm of educated guesswork here. I mean, there’s no precedent for this. The sky’s the limit.”

Normally, about 20% of the world’s oil and gas passes through the Strait of Hormuz, but shipping traffic has virtually stopped through this key shipping corridor since the war began.

Oil prices fell from their session highs on Monday shortly after the Financial Times reported that finance ministers from the G7 economies would hold an emergency meeting on Monday to discuss a possible joint release of oil from reserves coordinated by the IEA.

The UK Treasury and the French government confirmed to CNBC that the call would take place on Monday.

Tyler Goodspeed, chief economist at ExxonMobil, told CNBC’s “Squawk Box Europe” on Monday that there was “a consensus last week, and to some extent still today,” that everyone except Russia had an “interest in seeing normal traffic through the Strait of Hormuz resume.”

He added that the consensus had been that there was “abundant oil in the water and some strategic reserves to cover any short-term gaps.” Goodspeed said he was skeptical of this view as the conflict enters its second week.

“When I think about the probability distribution of the possible outcomes here, it seems to me that there are many more, and more likely, scenarios in which the strait effectively remains closed more tightly for longer than scenarios in which normal traffic resumes,” Goodspeed said.

Meanwhile, Societe Generale analysts warned that prolonged production shutdowns in Middle Eastern countries “materially increase” the risk of restart complications.

“The United Arab Emirates is likely the next producer at risk of shutting down production, potentially within the next five to seven days,” the analysts said in a research note published Monday.

“Qatar is also vulnerable, although its oil volumes are modest relative to its LNG exposure. Saudi Arabia faces a less immediate risk, but closures would be plausible if the Strait of Hormuz remains closed for two to three more weeks,” they added.

— CNBC’s Holly Ellyatt contributed to this report.