Crude oil and gasoline prices are expected to spike when trading resumes Monday as Strait of Hormuz tanker traffic slows to a trickle amid warnings from the Islamic Revolutionary Guard Corps (IRGC) that the vital waterway, where more than 20 percent of the world’s oil is exported from the Persian Gulf, is “effectively closed.”
“Due to the insecure conditions around the strait resulting from the U.S. and Israeli military aggression and Iran’s responses, passage through the strait is currently unsafe,” the IRGC said in a Feb. 28 statement.
As of 1 p.m. ET on Sunday—9:30 p.m. in Iran—at least two oil tankers and a port in Oman have been attacked, prompting ships to stack in the Arabian Sea rather than risk transiting the narrow 100-mile waterway and entering the Persian Gulf.
The state-run Oman News Agency said Sunday that the Palau-flagged tanker Skylight was struck by a missile or drone near Khasab in the strait, wounding four of its crew and forcing the ship to be evacuated, and that the port of Duqm, a logistical hub for the U.S. and British navies, was struck by two drones, causing little damage and no injuries.
The United Kingdom’s. Maritime Trade Operations later reported an unnamed tanker off United Arab Emirates in the Gulf caught fire after being struck by a projectile. The fire was extinguished and no casualties reported.
Iran exports between 1.5 and 1.6 million barrels of crude oil a day, most to privately owned refineries in China. The longer the strait remains under attack, the more Iran’s customers will need to obtain crude from other sources, potentially causing global market prices to rise.
Chinese refiners purchase more than 80 percent of Iran’s exported oil, according to data compiled by analytics firm Kpler, defying sanctions imposed by the United States.
Representatives from eight of OPEC+’s 12 member countries met virtually on Sunday and agreed to modestly increase oil production by 206,000 barrels per day to cushion the impact of an anticipated halt in Iranian production.
Iran is a member of the cartel but is not part of the tentative agreement between Saudi Arabia, Russia, Iraq, United Arab Emirates, Kuwait, Kazakhstan, Algeria, and Oman to boost production until the conflict is resolved.
In the days before the Feb. 28 outbreak of hostilities, Brent crude prices increased by nearly 3 percent, closing above $72.80 a barrel on Feb. 27. Some analysts speculate global oil prices could increase by $10 to $20 per barrel, to above $90 a barrel.
A Feb. 18 Center for Strategic & International Studies analysis laid out four “oil supply disruption scenarios” that could unfold if the United States attacked Iran.
If Iran targeted Strait of Hormuz tanker traffic, “Oil prices would initially spike with surging freight and insurance rates, and with some ship operators likely fleeing the region, further diminishing export capacity,” the analysis states.
How much prices will increase and for how long is a matter of “volume and duration of a physical disruption,” the center maintains. “Crude prices could climb past $90 per barrel, pushing U.S. retail gasoline prices well above $3 per gallon on a national average basis (some regions higher).”
U.S. gas prices averaged $2.98 per gallon as of Feb. 26, according to AAA.
