At a time when the United States and Iran have escalated their attacks on Iran, it may have serious implications for global oil prices, with the latter instigating the full closure of the strategically important Hormuz Strait. Analysts and key oil market observers predict that oil prices could hit the magic three-digit figure in the wake of the ongoing conflict.
“At this point, it seems we are looking at a full-scale military conflict between the U.S. and Iran, which would be unprecedented and the trajectory impossible to assess,” said Vandana Hari, CEO of energy research firm Vanda Insights, told CNBC International.
The tension in the Middle East peaked following the killing of Iran's self-proclaimed Supreme Leader, Ayatollah Ali Khamenei, marking a turning point in the country's politics.
While Ali Khamenei is no longer in charge, the theocratic government of Iran has set up a system in which interim decisions are being taken by the Leadership Council. With Iran still holding key oil reserves and strategic supply chain corridors, including the Hormuz Strait, Hari believes oil prices will remain volatile unless the US is able to completely disarm the Iranian navy and military.
“If it carries on for days with Iran and its proxies retaliating to the fullest extent, we are looking at the worst-case scenarios for oil, including a major disruption of oil flows through the Middle East,” she said.
Located between Oman and Iran, the Strait of Hormuz serves as a critical transit route and a supply chokepoint for global crude, with around 13 billion barrels per day moving through the corridor in 2025 alone, which is equivalent to 31% of all seaborne oil shipments, according to data from Kpler.
With the Strait of Hormuz grinding to a near halt, experts believe oil prices could reflect the volatility last seen in 2022, and potentially even reach the three-digit mark.
“This could present a scenario three times the severity of the Arab oil embargo and Iranian revolution in the 1970s, and drive oil prices into the triple digits, while LNG prices retest the record highs of 2022,” Saul Kavonic, head of energy research at MST Marquee, told CNBC International.
April Futures of WTI Crude are trading at $72 per barrel as of Tuesday morning, whereas Brent Crude remains just shy of the $80/barrel level it had reached on Monday.
ALSO READ: 'Will Set Ships Ablaze': Iran Formally Shuts Strait of Hormuz, Issues Stern Warning
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