Amid signs of strain in the US-Iran ceasefire over the Lebanon issue, Donald Trump said on Wednesday that Washington is likely to escalate its military actions against Iran for two more weeks. Hence, reopening the Strait of Hormuz should be handled by other countries, not the United States.
Oil prices that dipped on Wednesday on optimism over the temporary ceasefire agreement jumped again after Trump’s speech
Brent crude, the international standard, was up 3.5% to $98.09 per barrel. Benchmark U.S. crude was 3.6% higher on Thursday at $97.83 a barrel, an AP report noted.
US oil prices have climbed past $100 a barrel since Iran’s retaliation stalled deliveries of oil out of the Middle East.
The Strait of Hormuz, a chokepoint for energy transport where a fifth of the world’s oil typically passes, was largely closed even though the US repeatedly demanded that it must be reopened. Wednesday’s message sent a troubling signal for the oil industry as it said tensions in the region would continue and the US is abdicating the responsibility to protect the Strait of Hormuz
Speaking of US military strikes in Iran, Trump said, “We are going to finish the job, and we’re going to finish it very fast,” adding it could take up to three weeks
“The countries of the world that do receive oil through the Hormuz Strait must take care of that passage,” Trump said. “They must cherish it. They must grab it and cherish it. They can do it easily.”
Is Iran redefining control over Hormuz?
While speaking to Politico, analysts said Iran has proved that it literally halt exports of oil, gas, fertilizers, and other goods from the Gulf by shutting the Strait of Hormuz. It has also shown it can withstand US retaliation and may now act like a gatekeeper for regional exports.
It could effectively charge a toll on global trade flows, which is likely to push up prices of key commodities worldwide, report said quoting analysts
“The oil and gas supply chain has been fractured, whether or not victory is claimed by Trump,” said June Goh, senior oil analyst at Sparta Commodities. “Iran has effectively controlled the Strait of Hormuz.”
If the US leaves without securing Hormuz, the impact could last for years, signalling Washington may no longer be relied on to keep key shipping routes open for global trade.
“Securing the Strait of Hormuz is one of our entire reasons for existing,” Samantha Gross, energy and geopolitics analyst at the Brookings Institution think tank said of America’s role on the world stage. “Trump has ceded the mission of the US Navy of freedom of navigation.”
Are consumers bracing for costlier Oil and Gas via Hormuz?
The oil industry is already estimating what Iran could charge to let ships pass through Hormuz. Companies may face a new “toll” to transit the route and additionally they could also pay higher insurance premiums due to security risks. These costs would apply to shipments of oil, gas, helium, fertilizers, and other goods.
Sam Ori, executive director of the Energy Policy Institute at the University of Chicago notes they have “demonstrated that they can close it now … they plan to use that newfound capacity to implement a cost,” Ori said. “We’ve moved into a space where things are going to be a little bit more expensive for the foreseeable future.”
Iran is reportedly charging $2 million per tanker to pass through the Strait, which equates to about $1 per oil barrel. Before the conflict, companies typically paid around $250,000 for insurance on such trips.
Could a deal bring relief to global energy prices?
Mark Menezes, CEO of the U.S. Energy Association, a non-partisan group that serves as a forum for energy policy discussions, said even small signs of a resolution could quickly steady prices.
Infact, a negotiated deal could ease tensions lowering the extra costs paid by traders, shippers, and insurers using the Strait, he predicts
“I would seriously doubt that anyone in Iran, whoever it may be, would expect to dictate the outcome of these negotiations,” said Menezes, who was the No. 2 at the Energy Department in Trump’s first term. “It’s possible that the future arrangement might be better than it even was in the past.”
