Oil prices have risen sharply and stocks have fallen as US and Israeli attacks on Iran and retaliatory attacks on Israeli and US military facilities in the Middle East have disrupted the global energy supply chain.
West Texas Intermediate Oil, the light, sweet crude produced in the United States, was selling for $72.79 a barrel early Monday, up 8.6 percent from its trading price of about $67 on Friday, according to CME Group data.
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Brent crude, the international standard, was trading at $79.41 a barrel early Monday, according to FactSet, up 9 percent from its trading price of $72.87 on Friday, then a seven-month high.
Traders were betting that oil supplies from Iran and other parts of the Middle East would slow or stop after U.S. President Donald Trump suggested attacks would continue until U.S. goals were met.
US and Israeli military strikes against Iran showed no signs of abating, while Iran responded with missile bombardments across the region, risking dragging its neighbors into the conflict.
All eyes were on the Strait of Hormuz, through which about a fifth of the world’s maritime oil trade flows. Tankers traveling through the strait, which borders Iran to the north, carry oil and gas from Saudi Arabia, Kuwait, Iraq, Qatar, Bahrain, the United Arab Emirates and Iran.
While the vital waterway has not yet been blocked, maritime monitoring sites showed oil tankers piling up on both sides of the strait, fearful of attack or unable to obtain insurance for the journey.
On Sunday, two ships sailing through the Strait of Hormuz were attacked.
“The most immediate and tangible event affecting the oil markets is the effective cessation of traffic through the Strait of Hormuz, preventing 15 million barrels a day of crude oil from reaching the markets,” Jorge León, head of geopolitical analysis at Rystad Energy, told Reuters news agency.
“Unless signs of de-escalation emerge quickly, we expect a significant upward revaluation of oil.”
Higher global energy prices mean consumers will pay more for gasoline at the pump and will have to shell out more to buy groceries and other goods at a time when many are already feeling the impacts of inflation.
Iran temporarily closed parts of the strait in mid-February for what it said was a military exercise. This led to an increase in oil prices of around 6 percent in the following days.
In this context, eight countries that are part of the OPEC+ oil cartel announced on Sunday that they would increase production. The Organization of the Petroleum Exporting Countries, at a meeting scheduled before the war began, said it would increase production by 206,000 barrels a day in April, more than analysts expected. The countries that are boosting production are Saudi Arabia, Russia, Iraq, the United Arab Emirates, Kuwait, Kazakhstan, Algeria and Oman.
Japan, which imports all of its oil, saw its Nikkei stock index fall 1.3 percent on Monday. Blue-chip stocks in China, which receives much of its oil imports by sea from the Middle East, fell just 0.1 percent. MSCI’s broadest index of Asia-Pacific shares outside Japan fell 1.2 percent.
Iran exports about 1.6 million barrels of oil a day, mainly to China, which may need to look elsewhere to meet its energy needs if Iranian exports are disrupted, another factor that could drive up energy prices.
However, China has ample strategic oil reserves and could boost imports from Russia, analysts said.
In the Middle East, the United Arab Emirates and Kuwait temporarily closed their stock markets, citing “exceptional circumstances.”
In Europe, EURO STOXX 50 Futures lost 1.3 percent and DAX futures fell 1.4 percent. FTSE futures fell 0.6 per cent. On Wall Street, S&P 500 and Nasdaq futures lost 0.8 percent.
The oil crisis has had an impact on currency markets, with the dollar being one of the main beneficiaries. The United States is a net energy exporter and Treasuries are still considered a liquid haven in times of stress, leading the euro to fall 0.2 percent to $1.1787.
