Live updates: Follow the latest news on Iran war
Oil prices surged nearly 5 per cent on Monday as markets reacted to escalating tension in the Gulf, after US President Donald Trump dismissed Iran’s latest response to his proposal to end the Middle East conflict.
The latest developments heightened fears of continued supply disruption through the Strait of Hormuz, pushing up crude prices.
Brent, the benchmark for two thirds of the world's oil, was trading up 4.30 per cent at $105.70 a barrel at 9.27am UAE time. West Texas Intermediate, the gauge that tracks US crude, was up 4.96 per cent to $100.20 a barrel.
Mr Trump said in a social media post on Sunday that Iran’s response to American proposals to stop the conflict was “totally unacceptable”.
“I have just read the response from Iran’s so-called ‘representatives’. I don't like it,” he wrote on Truth Social. “The text stresses the need for the lifting of US sanctions, an end to the war on all fronts and Iranian management of the Strait of Hormuz if certain commitments are fulfilled by the US,” it read.
The effective closure of the waterway and Iranian attacks on key energy sites across the Middle East have led to a major oil shock, with prices up about 45 per cent since February 28 when the war started.
Ipek Ozkardeskaya, senior analyst at Swissquote Bank, said oil could cost “between $100 and $110 per barrel” in the event of no deal between US and Iran bringing a prolonged conflict.
“Again, we could see short spikes above the $120 per barrel mark – in the worst-case scenario up to $140 – but demand destruction will likely prevent a consolidation above the $120 per barrel mark,” she told The National. “A credible and sustainable peace plan could send crude immediately to $80 per barrel and below, sustainably.”
In the longer term, prices could return to $50-$60 per barrel with “ample supply, weakening Opec’s pricing power and the US's 'drill, baby, drill’ policy”.
The rise in crude prices on Monday ends a three-day losing streak. Both Brent and WTI remained in the red last week, down more than 6 per cent.
Shipping disruption in Hormuz
Saudi Aramco’s chief executive Amin Nasser said on Sunday that the longer the disruption to shipping continues, the longer oil supply will remain disrupted, potentially into next year.
Ms Ozkardeskaya said that due to the Hormuz closure, exporters are reorganising and shipping oil by using alternative routes, “but 25 per cent of oil transited from the strait before the war, that’s around 25 million barrels to reroute”. She added: “It's not going to happen overnight.”
Soojin Kim, research analyst at MUFG, said oil markets are “increasingly pricing in prolonged supply tightness” amid expectations that shipping disruption in the strait will extend well into the second half of the year.
