Oil prices are poised to soar well above $100 a barrel should Iran follow through on threats to block the Strait of Hormuz, a move analysts have labelled a “worst case scenario” for the global energy market.
The warning comes after Iran’s parliament voted to close the vital shipping lane in retaliation for recent US airstrikes on its nuclear facilities.
The final decision now rests with Iran’s Supreme National Security Council, raising concerns across international markets about the potential for severe disruption to global oil supplies.
The Strait of Hormuz is widely regarded as the world’s most important crude oil shipping route, with approximately 20% of global oil supplies passing through its narrow waters.
Any closure would immediately choke off a significant portion of the world’s oil, causing a dramatic supply shock.
Kallum Pickering, chief economist at Peel Hunt, cautioned that any disruption to the strait could trigger “a significant global supply and price shock, depressing global GDP and pushing up inflation”.
Brent crude, the international benchmark for oil prices, has already climbed by about $10 per barrel since Israel launched strikes on Iran on 13 June. As of this morning, Brent crude was trading just below $78 a barrel.
Historian Sir Niall Ferguson told The Times that blocking the strait would send oil prices “way above” $100 a barrel. David Fyfe, chief economist at Argus Media, went further, suggesting prices could reach as high as $150 a barrel if the disruption persists.
The spectre of surging oil prices comes as the UK government prepares to unveil a new 10-year industrial strategy aimed at reducing energy costs for businesses.
The plan, to be announced today, seeks to cut energy bills by up to 25% for more than 7,000 UK firms by scrapping certain green levies, among other measures to boost economic growth.
With geopolitical tensions escalating and the fate of the Strait of Hormuz hanging in the balance, energy markets and policymakers alike are bracing for the possibility of a significant and prolonged oil price shock.
