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A new crisis in the Strait of Hormuz could put an end to cheap oil and send the price of a barrel of Brent above US$ 100. Fuel prices could rise and impact consumers' pockets!
An escalation in the conflict between Israel and Iran threatens to disrupt traffic in the Strait of Hormuz, through which 20% of global oil trade passes. Experts warn that a blockade can lead to brent oil barrel price to surpass US$ 100, sending fuel costs skyrocketing across the planet. Understand why this narrow channel could trigger a global energy crisis like the one in the 70s — and how this could directly affect your pocketbook.
The geopolitical importance of a 21-kilometer canal — the vital artery for the world's oil flow
Global markets have once again felt the effects of tensions in the Middle East, with the price do oil fluctuating in recent days. The reason? The growing risk that the Strait of Hormuz, a strategic route for the world's energy supply, could be affected by the escalation of the conflict between Israel and Iran. This sea channel, just 34 km wide at its narrowest point, is today the main transit point for the cheap oil that powers much of the global economy.
Despite its average width of 21 km in certain areas, the Strait of Hormuz has a gigantic impact. According to the United States Energy Information Administration (EIA), about 20% of the oil traded globally passes through this strait daily. In addition, it is responsible for approximately 25% of the world's trade in liquefied natural gas, establishing itself as a vital artery for the global energy flow.
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Senior researcher Simone Tagliapietra, from the Bruegel think tank, warns that any blockage at this point could generate consequences similar to the historic oil shock of the 1970s, which paralyzed economies and caused a global energy crisis.
Iran may try to disrupt shipping traffic in the Strait of Hormuz
In recent months, Iran has stepped up its military response, firing missiles at Israel following the killing of Hassan Nasrallah, a central figure in the Tehran-backed Hezbollah group that operates in Lebanon. In response, Israel has vowed to retaliate. Defense Minister Yoav Gallant told CNN that “everything is on the table,” raising the specter of a direct confrontation between the two regional powers.
As the situation worsens, fears are growing that Iran may attempt to disrupt shipping traffic in the Strait of Hormuz in response to a possible Israeli attack on Iranian nuclear facilities. While this possibility is still considered remote, the degree of unpredictability of the current Iranian leadership worries international analysts.
Comparisons with the 1973 embargo resurface
The memory of the 1973 embargo — when Arab countries stopped the export of oil to the United States in response to its support for Israel—serves as a warning. At that time, the oil barrel price skyrocketed, causing a global supply crisis and kilometer-long queues at gas stations.
This time, although the increase in values is still moderate, the threat of a blockage in the Strait of Hormuz could completely change the scenario. ClearView Energy Partners estimates that if maritime traffic is compromised, the pricedo barrel of oil could exceed $100, putting pressure on fuel costs and affecting the economic recovery of several nations.
Market reacts, but still watches China and excess oil supply
Since late September, when Israel began attacks on Hezbollah positions, the market has seen a slight increase in prices. The barrel of Brent, a global benchmark, rose 5% to $77. West Texas Intermediate (WTI), a benchmark in the United States, rose 3,6% and is trading at around $74 per barrel. Still, investors' focus remains divided between geopolitical risks and the slowdown in the Chinese economy, in addition to the excess supply of oil in circulation.
Richard Bronze of Energy Aspects, a consultancy, said the likelihood of Iran closing the Strait of Hormuz was still “relatively low” but that the unpredictability had increased. He said that if Israel’s response was aggressive enough, “it cannot be ruled out that Tehran would try to disrupt transit through the strait.”
A flashpoint that could reshape the world’s energy future
Faced with so much uncertainty, the world is closely following every move in the Middle East. The Strait of Hormuz, a key piece in maintaining the cheap oil, has once again become a global point of tension. Any significant change in its operation could reshape the geopolitics of the energy sector, directly affecting the oil barrel price and the costs to consumers around the world.
