Oil rose on signs of heightened tensions in the Strait of Hormuz after US President Donald Trump said the country would guide stranded ships out of the vital waterway.
Brent spiked more than 5 per cent to trade above US$114 a barrel, before paring some of the gain as prices fluctuated sharply. Futures reached intra-day highs following unverified Iranian media reports claiming two missiles hit an American patrol boat, which the US Central Command denied.
Mr Trump’s plan left shipping executives perplexed, while Iran said US forces would be attacked if they entered the Strait of Hormuz. Iran’s semi-official news agency later said Tehran “redefined the control zone” in the strait, effectively setting out a wider area to regulate shipping in the region.
The escalation comes after weeks of stalemate and failed attempts to reach a peace deal, with Tehran keeping a tight grip over Hormuz and the US enforcing a blockade of Iran’s ports to choke its oil exports. The deadlock threatens to prolong the oil market’s worst-ever supply disruption, as traffic remains at a near standstill and attacks on commercial vessels continue.
“The market is clearly nervous that the events today further weaken the prospect of a reopening of the strait,” said Mr Jens Naervig Pedersen, a strategist at Danske Bank AS.
Hormuz was the chokepoint for about a fifth of the world’s oil shipments before the war erupted with US-Israeli attacks on Iran at the end of February. Its closure has sent energy prices surging, triggered fuel shortages in several parts of the world and is stoking fears of higher inflation and slower global growth. Soaring fuel prices are also a political headwind for Mr Trump.
US Central Command said on May 3 it would provide military support, including guided-missile destroyers, aircraft and drones to ships transiting the strait. Two US-flagged merchant vessels successfully transited the strait, US Central Command said in a post on May 4.
Several shipowners and a ship manager contacted by Bloomberg said more concrete details would be needed, as well as assurances around key concerns including mines and safety from Iranian attacks. They asked not to be named given the sensitivity of the issue.
The UAE said one of its vessels was targeted by two Iranian drones as it was passing Hormuz. On May 3, there was a report of a bulk carrier being attacked by small boats.
“Not many believe that the Strait will reopen anytime soon,” said Mr Arne Lohmann Rasmussen, chief analyst at A/S Global Risk Management, adding that the US plan marks the first attempt to reopen the chokepoint by military means. “The market will closely monitor Iran’s response.”
In his comments on Hormuz, Mr Trump also said that representatives were having discussions with Tehran that could lead to something “very positive”, but did not offer additional details.
Iran gave the plan a cool reception. Any US interference in the strait would constitute a violation of the ceasefire, Al Mayadeen reported, citing Mr Ebrahim Azizi, head of the Iranian parliament’s National Security Commission.
The country’s new control zone will stretch from south of Mount Mobarak in Iran to south of UAE’s Fujairah, and from west of Qeshm Island in Iran to Umm al-Quwain in the UAE, Iran’s semi-official news agency Tasnim reported.
Over the weekend, OPEC+ agreed to a symbolic rise in June quota levels, as the group sought to send a business-as-usual message after the exit of the United Arab Emirates. Abu Dhabi, meanwhile, touted its own growth plans. BLOOMBERG
