An earlier peace deal between the sides expired this week, with neither side making efforts to resume talks. U.S. President Donald Trump also threatened economic retaliation against countries supporting Iran.
Crude oil price on August 21
Brent crude futures rose 4 cents to $93.82 a barrel after gaining more than 2% in the previous session. U.S. West Texas Intermediate crude futures fell 6 cents to $86.78 a barrel, following a 2.3% rise in the prior session. Over the previous five days, Brent has gained more than 7%, while WTI has risen more than 8%. Both benchmarks reached their highest levels since July 24.
Oil prices have climbed as concerns grow that the unresolved U.S.-Israeli war on Iran could keep supplies from major producers such as Saudi Arabia, Iraq, the UAE and Kuwait curtailed.
Also read: From hammering Iran to strangling them: Donald Trump has a new approach in Middle East war
On Wednesday evening, Trump threatened “economic warfare and isolation on an unprecedented scale” against Tehran and warned of consequences for any country providing “any type of lifeline to Iran”.
The United Arab Emirates this week suspended all financial and economic transactions with Iran until further notice, underscoring the strained ties between the major Gulf Arab oil producer and Tehran.Thousands of people have been killed since the Iran war began on February 28, when the U.S. and Israel launched military strikes on Iran. Since then, Tehran’s blockade of the Strait of Hormuz and Iranian attacks on energy facilities across the Middle East have disrupted global oil and gas flows.
Shipping traffic through the Strait of Hormuz on Wednesday was unchanged from the previous day, with nine vessels transiting the waterway, well below pre-war levels. Before the Iran war, shipments equivalent to about one-fifth of global consumption moved through the strait.
What are experts saying?
The duration of the disruption will be a key factor for crude prices. JPMorgan estimates that each additional month of disruption could add around $7 to $8 a barrel to Brent prices. If the disruption continues for three months, the bank expects average monthly Brent prices to reach around $114 a barrel.
Goldman Sachs has also warned that Brent could rise to $120 a barrel if shipping disruptions through the Strait of Hormuz, the world’s most important oil transit route, persist.
Read more: Iran dismisses US economic threats and other developments in the Middle East
At the same time, Goldman Sachs expects Middle East tensions to eventually ease under its base case. The bank forecasts Brent to average $80 a barrel in the fourth quarter and $75 a barrel next year. It said risks remained tilted to the upside, with disruptions through the Strait of Hormuz and the Red Sea potentially lasting longer than expected.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
