Oil futures saw a significant surge of up to 5% on Sunday night following US strikes on Iran’s main nuclear sites, sparking concerns of a potential supply shock. This escalation in tensions raised fears that Iran could retaliate by closing off the vital maritime chokepoint of the Strait of Hormuz.
The international benchmark, Brent crude, soared by as much as 5.7%, reaching above $80 per barrel. Similarly, West Texas Intermediate futures also experienced a jump of over 4%, hovering around $77 per barrel. These price increases come on the heels of a week of gains driven by the conflict between Israel and Iran.
Traders are closely monitoring Iran’s potential retaliatory actions in response to the US involvement in the strikes. Iran’s parliament has already voted to close the Strait of Hormuz, a critical waterway responsible for approximately 20% of global oil flows. The final decision rests with Iran’s Supreme National Security Council and Supreme Leader Ayatollah Ali Khamenei.
Analysts are now viewing the possibility of a prolonged conflict as a heightened risk, with predictions of oil prices reaching $100 or even $120-$130 per barrel in severe scenarios. This spike in oil prices could lead to an increase in gasoline and diesel prices by as much as $1.25 per gallon, potentially pushing the national average gasoline price to $4.50 per gallon.
In the event of an escalation, Iran could support Yemen’s Houthi rebels in attacks on commercial shipping or target export facilities in neighboring countries if its own oil infrastructure is attacked. The duration of any disruptions will be crucial in determining the impact on oil prices, with long-lasting damage likely resulting in a sustained upward trend.
Historically, major military conflicts involving regional oil producers have had a significant and lasting impact on oil markets. Events such as the first Gulf War, the Iraq War, and sanctions on Iran led to substantial increases in oil prices. Regime changes in oil-producing countries have also driven substantial oil price spikes.
Despite efforts by OPEC+ to increase output in the months leading up to the recent conflict, the potential closure of the Strait of Hormuz and further escalations could disrupt global oil supply chains. As tensions continue to escalate, the energy market remains highly volatile and susceptible to further price spikes.
Ines Ferre, a Senior Business Reporter for Yahoo Finance, provides in-depth analysis of the latest stock market news and events moving stock prices. Stay updated on the latest financial and business news from Yahoo Finance for comprehensive coverage of the evolving situation in the energy market.
