Oil Prices Fluctuate Amid Escalating Middle East Tensions
Oil prices have seen a slight dip on Thursday but remain near their highest levels since mid-June due to the ongoing tensions in the Middle East. The escalation of the Iran war has led to concerns over the security of oil exports, with Tehran asking the Houthi movement to be prepared to close the Red Sea oil export route.
Brent crude futures have edged lower by 19 cents, or 0.2%, to $84.76 a barrel, while U.S. West Texas Intermediate futures have dropped by 17 cents, or 0.2%, to $79.43 a barrel. Despite the slight decline, both contracts have seen significant gains, with Brent futures reaching their highest since June 12 and WTI futures hitting their highest since June 15.
The tension in the Middle East has been escalating rapidly, with Iran asking the Houthi movement to prepare to close the Red Sea oil route if the U.S. strikes Iranian power infrastructure. This move has raised concerns over the disruption of oil exports, with the Strait of Hormuz already being closed. The Strait of Hormuz is a critical chokepoint for oil exports, handling about a fifth of daily global oil and LNG trade.
Total volumes of petroleum transiting Bab el-Mandeb amounted to 7.4 million barrels per day in June, or about 7% of global oil output, according to Kpler data. This is a significant increase from last year’s 4.2 million bpd. The disruption of both the Strait of Hormuz and Bab el-Mandeb would have a devastating impact on the global oil market, amplifying supply chain stress, increasing tanker availability constraints, and raising insurance premiums.
Experts have warned that the simultaneous disruption of both oil export routes could lead to oil prices reaching as high as $90-$95 and even touching the $100 mark again. The fragile truce reached in June has collapsed, disrupting energy flows through the Strait of Hormuz. The U.S. has reimposed its naval blockade on Iran, leading to a significant reduction in vessels passing through the strait, with only seven vessels crossing on Wednesday compared to 13 the previous day.
On the supply side, Iraqi crude loadings have more than doubled to average roughly 1.2 million barrels per day in the first half of July, according to Kpler data and a source with direct knowledge of the flows. This increase in exports has been driven by accelerated shipments following months of restricted shipments.
Analysts have warned that the ongoing tensions in the Middle East will continue to drive oil prices higher, with the Strait of Hormuz being repeatedly disrupted, creating uncertainty over oil flows from the Gulf. The situation remains highly volatile, and oil prices are likely to remain sensitive to any developments in the region.
