Crude oil prices rose on Thursday as fresh hostilities between the United States and Iran in the Strait of Hormuz reignited supply concerns, with both sides engaging in military actions that threaten the stability of a key global energy chokepoint. June West Texas Intermediate crude oil futures climbed 0.88%, while gasoline futures gained 0.78%, as traders priced in heightened risk of prolonged disruption.
Renewed Conflict in the Strait of Hormuz
Iran’s semi-official Tasnim news agency reported that Iranian forces seized an oil tanker in the Strait of Hormuz, accusing the vessel of attempting to disrupt Iranian oil exports. In response, the United States military targeted missile and drone launch sites in Iran that had been used to attack three US Navy destroyers transiting the strait. The US also stated it had disabled two unladen Iranian-flagged oil tankers attempting to move through the waterway.
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These actions come as the US and Iran remain locked in negotiations over reopening the strait, which has been effectively closed since April. The US presented a proposal to Iran that would gradually restore passage and lift the US blockade on Iranian ports, but Iran has yet to formally respond. Reports indicate Iran is expected to reply via Pakistan in the coming days.
Global Supply Impact and Market Reaction
The continued closure of the Strait of Hormuz is exacerbating global oil and fuel shortages. Approximately one-fifth of the world’s oil and liquefied natural gas transits through the strait. Goldman Sachs estimates that crude output in the Persian Gulf has been curtailed by about 14.5 million barrels per day, and that the disruption has drawn down nearly 500 million barrels from global crude stockpiles, a figure that could reach one billion barrels by June.
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The International Energy Agency reported on April 13 that roughly 13 million barrels per day of global oil supply had been shuttered due to the Iran conflict and the strait’s closure. The IEA also noted that more than 80 energy facilities have been damaged during the conflict, with recovery potentially taking up to two years.
OPEC+ Dynamics and Production Cuts
OPEC+ announced it would boost crude output by 188,000 barrels per day in June, following a 206,000 bpd increase in May. However, analysts question whether such increases are feasible given that Middle Eastern producers are being forced to cut output due to the war. OPEC’s April crude production fell by 420,000 bpd to a 35-year low of 20.55 million bpd.
Adding to the complexity, the United Arab Emirates announced on May 1 that it would leave OPEC, a move that allows the UAE to increase production without being constrained by the cartel’s quotas. While this is generally bearish for prices, the current geopolitical environment may limit any immediate output gains.
Broader Geopolitical Context
The Russia-Ukraine war continues to support oil prices, as Ukrainian drone and missile attacks have targeted at least 30 Russian refineries over the past ten months. Bloomberg data shows Russian refinery runs fell to 4.69 million barrels per day in April, the lowest in 16 years. US and EU sanctions on Russian oil companies, infrastructure, and tankers further constrain global supply.
Meanwhile, the Wall Street Journal reported that Saudi Arabia and Kuwait have lifted restrictions on the US military’s use of their bases and airspace after Iran launched missiles and drones at the UAE in response to US efforts to reopen the strait. The two countries had previously blocked US military access after senior US officials downplayed Iranian attacks on the Persian Gulf.
Conclusion
The escalation of hostilities in the Strait of Hormuz represents a significant risk to global energy markets, with supply disruptions already drawing down stockpiles at an alarming rate. Traders and policymakers are closely watching for Iran’s response to the US proposal, as any further deterioration could push prices higher. The situation underscores the fragility of global oil supply chains and the outsized influence of geopolitical events on energy prices.
FAQs
Q1: Why is the Strait of Hormuz important for oil prices?
The Strait of Hormuz is a narrow waterway through which about one-fifth of the world’s oil and liquefied natural gas passes. Any disruption to shipping there directly affects global supply and prices.
Q2: How much oil supply has been lost due to the current conflict?
Goldman Sachs estimates about 14.5 million barrels per day of Persian Gulf output has been curtailed, while the IEA says roughly 13 million bpd of global supply has been shuttered.
Q3: What is the US proposal to Iran regarding the strait?
The US has proposed a gradual reopening of the Strait of Hormuz and a lifting of the US blockade on Iranian ports. Iran is expected to respond via Pakistan in the coming days.
