Oil prices climbed about 4 per cent on Monday after the US military began a blockade of ships leaving Iran’s ports after talks on ending the Iran war broke down.
Brent futures rose $4.16 or 4.4 per cent to $99.36 per barrel, while the US West Texas Intermediate (WTI) crude increased by $2.51 or 2.6 per cent to $99.08 a barrel.
Following the collapse of peace negotiations in Islamabad, Pakistan, President Donald Trump announced on Sunday that the US Navy would begin a blockade of the Strait of Hormuz, with enforcement officially beginning on Monday. In response, Iran threatened to retaliate against Gulf ports on the same day.
The American President said the US would block Iranian vessels and any ships that paid such tolls and that any Iranian “fast-attack” ships that went near the blockade would be eliminated.
He also said Iran had been in touch on Monday and wanted to make a deal, but that he would not sanction any agreement allowing it to have a nuclear weapon.
The war has resulted in the largest-ever disruption of global oil and gas supplies due to Iran’s interruption of traffic through the Strait of Hormuz, which handles about 20 per cent of global oil and liquefied natural gas flows. Normally, more than 100 vessels transit the strait daily, but the blockade has restricted traffic, with only friendly ships passing.
Meanwhile, Britain and France said they would not be drawn into the conflict by taking part in the blockade, stressing instead the need to reopen the waterway.
More countries have announced emergency support measures to combat rising energy costs. The head of the International Energy Agency (IEA), Mr Fatih Birol, said he hopes another oil stockpile release is not needed, but added the agency was ready to act if the energy shock from the US-Israel war with Iran requires it.
The 32-member IEA agreed last month to release 400 million barrels of oil from reserves, the largest-ever coordinated release, in a bid to calm oil markets.
Meanwhile, the Organisation of the Petroleum Exporting Countries (OPEC) lowered its world oil demand forecast for the second quarter by 500,000 barrels per day, citing the economic impact of the ongoing war in the Middle East. OPEC’s lower demand outlook comes at a time when the group’s oil production has collapsed due to the ongoing war.
Global oil demand is now projected to average 105.07 million barrels per day for the second quarter, down from the 105.57 million barrels per day previously estimated in March.