S&P Global vice chairman Daniel Yergin said on Monday the threat of a military confrontation between the US and Iran is putting a premium on oil prices.
The threat of escalation between the two countries has led to a surge in oil prices, with Brent, the global benchmark for crude, reaching a six-month high on Monday at $72.33 per barrel. West Texas Intermediate, which tracks US crude, is also at a six-month high of $67.14 a barrel as of 10.12am ET.
“There's about a $10 premium in the price of oil because of uncertainty and anxiety about what's going to happen between the United States and Iran,” Mr Yergin said on the sidelines of the Economic Policy Conference in Washington.
He said oil prices would “certainly be lower” if looking at supply and demand.
Tension between Washington and Tehran has had a sharper effect on oil markets than the situation in Venezuela, where the US is seeking to take control the country's oil sales following the removal of president Nicolas Maduro last month.
Mr Yergin said what differentiates the two market reactions is the Strait of Hormuz, a vital waterway through which about a fifth of the world's oil supply passes. “That's what hangs over everything,” he said.
On Sunday, Oman's Foreign Minister Badr Al Busaidi said the sultanate would mediate in a third round of talks between Iran and the US in Geneva on Thursday.
The US has been pushing Iran to cease all enrichment activity and dismantle its nuclear plants, while the Opec member insists on retaining some fuel-making capacity for what it says are peaceful purposes.
For weeks, US President Donald Trump been threatening to launch strikes on Iran and had ordered the largest US military build-up in the region since the invasion of Iraq in 2003.
Iran, a member of Opec, has also boosted its military presence in the region, conducting naval exercises and drills in the Strait of Hormuz last week.
“There's a lot of … anxiety in the oil price right now and for understandable reasons, because you're not just talking about Iran, you're talking about a region that's critical for world supply,” Mr Yergin said.
The S&P chairman, who hosts the annual CERAWeek gathering in Houston, played down the long-term consequences in the event of Iran closing off the Strait of Hormuz because of the US Navy's heavy presence in the region. Still, he said, there would be an immediate impact on the price of oil.
Opec paused production increases for the first quarter this year, after having returned 2.9 million barrels per day to the market since last April. The bloc is currently unwinding 1.65 million bpd of voluntary cuts that were announced in April 2023.
The bloc is now estimating global demand will grow by 1.4 million bpd this year.
“There's no physical shortage of oil. If anything, the global oil market is still oversupplied. Really, it's a barometer of anxiety,” Mr Yergin said.
