Oil prices have risen in early market trading after the US said it would blockade Iranian ports beginning Tuesday morning (New Zealand time).
The price of Brent crude oil, the international standard, rose 7% to $102.29, while US crude oil rose 8% to $104.24 a barrel. Oil prices are traditionally measured in US dollars.
Brent crude has swung dramatically during the Iran war, rising from roughly $70 per barrel before the war in late February to more than $119 at times.
Ahead of the peace talks at the weekend, Brent for June delivery fell 0.8% to $95.20 per barrel.
Iran has been effectively controlling the Strait of Hormuz, a key waterway for global oil shipping.
US Central Command said the blockade would be “enforced impartially against vessels of all nations” entering or departing Iranian ports and coastal areas, including all Iranian ports on the Persian Gulf and the Gulf of Oman.
Two-week ceasefire of hostilities has yet to return the flow of supply ships through the Strait of Hormuz. (Source: 1News)
It said it would still allow ships travelling between non-Iranian ports to transit the Strait of Hormuz. The blockade of Iranian ports was expected to begin on Monday at 10am Washington time (Tuesday 4am NZ time).
Around a fifth of the world’s traded oil typically flows through the Strait of Hormuz every day. Saudi Arabia, Iraq, the United Arab Emirates, Kuwait, and Iran are all major exporters.
Traffic in the Strait has been limited even in the days since the ceasefire. Marine trackers say over 40 commercial ships have crossed since the start of the ceasefire.
Claudio Galimberti, chief economist of Rystad Energy, said the blockade will raise prices but might move the needle on talks.
“It means the oil markets will be even tighter than before,” he said.
“However, I think this is a negotiation tactic, which eventually resolves into a full opening of Hormuz. So, more pain now, but more gain later.”
The morning's headlines in 90 seconds, including why not to get complacent about storm warnings, President Trump threatens to blockade the strait of Hormuz, and Justin Bieber takes over Coachella. (Source: 1News)
However, Jim Krane, Energy Research Fellow at Rice University, said the blockade might be effective as a long-term strategy to impose pain on the Iranian economy, but it isn't a good short-term negotiating tactic when the oil market is already under strain.
“If the deficit to the oil market takes another jump it is going to impose pain on every person on Earth that’s subject to market oil prices,” he said.
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