Iran, oil and the price we all pay
The world is, in theory, trying to wean itself off its dependence on hydrocarbons but oil remains the lifeblood of economic growth.And when it comes to oil, there are two types of countries: those that produce it and those that consume it. The UK is a consumer.A sustained spike in oil prices would push up the price of petrol and diesel at the pumps here and inflation more generally.The conflict between Iran and Israel, now joined by the United States, has the potential to cause another energy price shock at a time when households in the UK are still feeling bruised by the last one, triggered by Russia's invasion of Ukraine. Oil prices briefly spiked to $80 a barrel overnight, up from around $60 at the start of the month, before easing back to $77.The worry is that Iran may respond to the US bombing of its nuclear facilities at the weekend by attacking energy infrastructure in the Middle-East or shipping in the Strait of Hormuz.
The Persian Gulf pumps a third of the world's oil.According to the US Energy Information Administration (EIA), around 20 million barrels of oil a day, around one fifth of global demand, passes through the Strait of Hormuz - from Saudi Arabia, the UAE, Kuwait, Qatar, Iraq and Iran - en route to markets, predominantly in Asia.The shipping lane is also an important supply route for Liquified Natural Gas from Qatar and Abu Dhabi. What happens next to the price of energy we use depends on how and if the Islamic republic retaliates.If the intensity of the fighting eases so too will the upward pressure of prices. If it escalates, the oil prices would dash towards $100 a barrel and potentially beyond - JP Morgan has $120 - $130 pencilled in for 'worst-case scenario' in which the Strait of Hormuz is shut for an extended period.
Iran has threatened to close the Strait of Hormuz before but has never done so, even during the 'tanker wars' between Iran and Iraq in the 1980s. There are practical reasons why not. Iran has a navy but would find a blockade hard to enforce, it would also be an act of self-harm - oil and gas revenues make-up almost half of the government's income.Moreover, the US has a fleet stationed in the Gulf and China (which relies on imports of Iranian oil) may decide to intervene. But Iran's options are narrowing and desperate regimes sometimes take desperate measures. In the event of closure, Saudi Arabia could divert oil West through its network of pipelines but oil from Iraq, Bahrain, Kuwait and Qatar would, in effect, be stranded.
The head of the International Monetary Fund (IMF) has warned that US decision to attack Iran could damage economic growth more widely if the price of oil surges. Kristalina Georgieva told Bloomberg that she 'prays' supply routes won't be disrupted.The worst may not happen but the perceived risk has increased, dragging the market price of energy up with it.For living standards here in the UK, this is unhelpful. Until this month, lower oil prices - a side-effect of the trade war President Trump unleashed on April 2 - had been one of the few economic bright spots.Anyone with a car has been enjoying the cheapest petrol and diesel prices, when adjusted for inflation, for twenty years. Sagging energy prices also strengthened the case for the Bank of England to cut interest rates. When the US fired its 'bunker buster' bombs at the Fardow nuclear site, the outlook for inflation here darkened.
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NBC News
3 hours ago
- NBC News
Oil prices show muted gains as world awaits Iranian response to U.S. strikes
U.S. benchmark oil prices were only marginally higher Monday morning, an outcome that reflects investors shifting into wait-and-see mode as they take stock of Iran's response to U.S. strikes on its nuclear facilities. The 0.2% gain in West Texas Intermediate crude futures, to less than $74 a barrel, reflected a significant overnight pullback from the nearly 4% spike seen Sunday evening when trading of commodities futures opened. Stocks opened flat. The current oil price is still the highest since late January — but is only slightly below the overall average seen since 2023. It would equate to gasoline prices of about $3.30 a gallon, assuming oil prices stay at these levels. That would be a big assumption. Wall Street analysts say that by ordering the strikes, President Donald Trump has once again injected massive uncertainty into markets after having already done so with his on-again, off-again tariff announcements. 'There is in our view a wide range of outcomes for oil prices in the next few weeks,' analysts with UBS financial group wrote in a note to clients. 'The nature and extent of Iranian retaliation remains the key parameter.' If the Iranian response somehow stays muted, oil prices could actually fall back down, the analysts said. But the U.S. strikes have likely increased the risk to disruptions of energy infrastructure in the Middle East, they wrote. If any such disruption were to occur, oil prices would surge in the short term. "EVERYONE, KEEP OIL PRICES DOWN. I'M WATCHING! YOU'RE PLAYING RIGHT INTO THE HANDS OF THE ENEMY. DON'T DO IT!" Trump posted to social media Monday morning. The biggest focus remains on whether Iran will limit or cut-off access to the Strait of Hormuz, a chokepoint in the Persian Gulf through which about one-fifth of the world's oil supply travels. Iran's state-owned media reported that Iran's parliament backed closing the strait — but that the final decision lies with Iran's national security council, according to the report. There was no word yet that such an order had been given. UBS said it sees a disruption of the strait as 'low probability' at this point. An early-morning report that six tankers had begun moving away from the strait was updated just before 9 a.m. to show that three of the vessels had reversed course and were heading back to the strait. 'The strait is critical for Iran's own exports as its terminal outside of the Strait only has limited capacity,' the analysts said. 'A closure would also have a material negative impact for several other countries such as Qatar and China and would likely present a challenge for Iran.' Analysts with ING financial group outlined four possible avenues for Iran: full escalation that also draws in other nations such as China or Russia; disruption of the Strait of Hormuz; active or passive support for terrorist attacks in the U.S. and Europe; or taking no action at all. 'We will abstain from speculating about the next steps and instead conclude that the most likely economic consequences from the US strikes will be on general uncertainty and on the price of oil,' the ING analysts wrote.
Daily Record
5 hours ago
- Daily Record
What is the Strait of Hormuz and why does it matter to global trade?
The UK could be hit hard if Iran closes the Strait of Hormuz in response to American strikes on its nuclear sites Fears of a widening conflict in the Middle East have deepened in recent days after the US bombed Iran. President Donald Trump made the unprecedented decision to bomb three Iranian nuclear sites over the weekend. The UK was not involved in the air strikes but was informed beforehand. John Swinney has called for the conflict to end, while Keir Starmer said Iran's nuclear programme is a "grave threat" which US military action would "alleviate". The world is now bracing for Iran's response to the US joining Israel in the biggest western military action against the Islamic Republic since its 1979 revolution. One way Iran could hit back, according to analysts, is to close off the strait of Hormuz, a vital trade route, through which over a fifth of the world's oil supply, 20m barrels, and much of its liquified gas, passes each day. Iran's parliament approved a measure to close the strait. Iran has threatened to close the strait in the past, which would restrict trade and impact global oil prices, but has never followed through. This time may be different, though. What is the strait of Hormuz? The strait of Hormuz lies between Oman and Iran and links the Gulf to the north with the Gulf of Oman to the south and the Arabian Sea beyond. It is 33km wide at its narrowest point, with the shipping lane just 3km wide. The strait is one of the world's most important oil chokepoints and is crucial to the US and beyond, as the strength of the global economy is heavily dependent on the flow of oil. Why is it so important? About one-fifth of the world's total oil consumption passes through the strait. Between the start of 2022 and last month, approximately 17.8 million to 20.8m barrels of crude, condensate, and fuels flowed through the strait daily, according to data from analytics firm Vortexa. Members of the Organization of the Petroleum Exporting Countries (OPEC) – Saudi Arabia, Iran, the United Arab Emirates, Kuwait and Iraq – export most of their crude via the strait, mainly to Asia. The US Fifth Fleet, based in Bahrain, is tasked with protecting commercial shipping in the area. What happens if it closes? Closing the strait would trigger a global oil crisis, skyrocket inflation rates and potentially plunge the economy into a downturn. On Sunday, specialists cautioned that such a move to shut the strait might also elicit "a significant military response" from both the US and its allies. Ami Daniel, CEO of maritime data company Windward, noted that even the mere "perception" of an Iranian assault on shipping could reduce maritime traffic to a mere trickle. Countless drivers could be hit with soaring fuel costs at the filling stations. The UK, which relies on imports for roughly half its oil supply, stands to be particularly exposed. Iran has been warned that shutting down the strait would be tantamount to "economic suicide", as reported by The Telegraph. US Secretary of State Marco Rubio has called on Iran's allies, including China, to exert pressure on Tehran to keep the Strait of Hormuz open, stating that any closure would be a "terrible mistake". Iranian oil also uses the same gateway, and shutting Hormuz risks bringing Gulf Arab states, who have been highly critical of the Israeli attack, into the war to safeguard their own interests, according to The Guardian. China would be particularly affected. The world's second-largest economy buys almost 90 per cent of Iran's oil exports, which are subject to international sanctions. What is Iran saying about the strait? Iranian lawmakers have voted to obstruct vital shipping routes through this key waterway after Trump decided to engage in the conflict between Israel and Iran. Iran's Press TV reported at the weekend that the Iranian parliament approved a measure to close the strait of Hormuz However, the vote by the Iranian parliament is not definitive, and state television has emphasised that the ultimate decision lies with Iran's top security officials. On Sunday Iran's foreign minister, Seyed Abbas Araghchi, said that Trump's decision to bomb Iran " will have everlasting consequences". Israel has made a "grave mistake" and "must be punished." He did not, however, make any specific reference to the strait of Hormuz. Join the Daily Record WhatsApp community! Get the latest news sent straight to your messages by joining our WhatsApp community today. You'll receive daily updates on breaking news as well as the top headlines across Scotland. No one will be able to see who is signed up and no one can send messages except the Daily Record team. All you have to do is click here if you're on mobile, select 'Join Community' and you're in! 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ITV News
5 hours ago
- ITV News
Iran, oil and the price we all pay
The world is, in theory, trying to wean itself off its dependence on hydrocarbons but oil remains the lifeblood of economic when it comes to oil, there are two types of countries: those that produce it and those that consume it. The UK is a consumer.A sustained spike in oil prices would push up the price of petrol and diesel at the pumps here and inflation more conflict between Iran and Israel, now joined by the United States, has the potential to cause another energy price shock at a time when households in the UK are still feeling bruised by the last one, triggered by Russia's invasion of Ukraine. Oil prices briefly spiked to $80 a barrel overnight, up from around $60 at the start of the month, before easing back to $ worry is that Iran may respond to the US bombing of its nuclear facilities at the weekend by attacking energy infrastructure in the Middle-East or shipping in the Strait of Hormuz. The Persian Gulf pumps a third of the world's to the US Energy Information Administration (EIA), around 20 million barrels of oil a day, around one fifth of global demand, passes through the Strait of Hormuz - from Saudi Arabia, the UAE, Kuwait, Qatar, Iraq and Iran - en route to markets, predominantly in shipping lane is also an important supply route for Liquified Natural Gas from Qatar and Abu Dhabi. What happens next to the price of energy we use depends on how and if the Islamic republic the intensity of the fighting eases so too will the upward pressure of prices. If it escalates, the oil prices would dash towards $100 a barrel and potentially beyond - JP Morgan has $120 - $130 pencilled in for 'worst-case scenario' in which the Strait of Hormuz is shut for an extended period. Iran has threatened to close the Strait of Hormuz before but has never done so, even during the 'tanker wars' between Iran and Iraq in the 1980s. There are practical reasons why not. Iran has a navy but would find a blockade hard to enforce, it would also be an act of self-harm - oil and gas revenues make-up almost half of the government's the US has a fleet stationed in the Gulf and China (which relies on imports of Iranian oil) may decide to intervene. But Iran's options are narrowing and desperate regimes sometimes take desperate measures. In the event of closure, Saudi Arabia could divert oil West through its network of pipelines but oil from Iraq, Bahrain, Kuwait and Qatar would, in effect, be stranded. The head of the International Monetary Fund (IMF) has warned that US decision to attack Iran could damage economic growth more widely if the price of oil surges. Kristalina Georgieva told Bloomberg that she 'prays' supply routes won't be worst may not happen but the perceived risk has increased, dragging the market price of energy up with living standards here in the UK, this is unhelpful. Until this month, lower oil prices - a side-effect of the trade war President Trump unleashed on April 2 - had been one of the few economic bright with a car has been enjoying the cheapest petrol and diesel prices, when adjusted for inflation, for twenty years. Sagging energy prices also strengthened the case for the Bank of England to cut interest rates. When the US fired its 'bunker buster' bombs at the Fardow nuclear site, the outlook for inflation here darkened.
