Strait of Hormuz, a factor that can send oil to the roof

Market Trends - 09/01/2020

According to analysts if Iran proceeded to cut off the Strait
of Hormuz, the energy Oil prices could fly to the roof.

Increasing geopolitical pressures have ignited concerns of
general friction in the Middle East, with energy market members frequently
concerned that the result could soon disturb regional crude stocks.

It has pushed the world’s most important oil chokepoint back
into global attention.

James Eginton, an investment analyst at Tribeca Investment
Partners, said while talking to CNBC yesterday a move by Iran to fully close
off crude supplies in the Strait of Hormuz could propel oil prices “through the

Located between Iran and Oman, the Strait of Hormuz is a
tight yet strategically significant way that connects crude producers in the
Middle East with important markets over the globe.

Last year regular oil flow in the channel averaged at 21
million barrels per day. Eginton said

“If you block the Strait of Hormuz, you will send oil through

“Over the next few days, if we start seeing the Iranians
start trying to block the Strait of Hormuz then we should be set for much
higher oil prices.”

Yesterday the Wall Street Journal, quoting sources, announced
that Saudi Arabia’s state tanker operator, Bahri, had refused transits through
the Strait of Hormuz.

British frigates have also reportedly been placed close to
the Gulf to assist British-flagged oil tankers to cross the Strait of Hormuz if
needed.  An oil analyst at PVM Oil
Associates Stephen Brennock told CNBC “Though I feel it is unlikely,
significant disruption to oil supplies through the Strait of Hormuz could well
usher in a new era of triple-digit oil prices”. 
Brennock said

“It is also worth noting that any attempt by Iran to prevent
vessels from passing through this chokepoint represents a red line for

“Such an event would, therefore, lead to an escalation in a
military conflict in the region. Needless to say, these risks causing supply
disruptions elsewhere in the Middle East which, in turn, will give oil prices a
further kick up the backside.”


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