The price of oil rises: “Investors seem to expect a real loss of production”

Oil prices continued to rise on Monday as the war between the US, Israel and Iran continued. The price of Brent crude oil was slightly higher on Monday morning at around 104 dollars, until a little before 10:00 Finnish time it already briefly rose to more than 106 dollars.

Hostilities have continued over the weekend. The United States launched missile strikes on Kharg on the night between Friday and Saturday. The island is responsible for most of Iran’s oil exports.

Iran responded by firing missiles at Israel and continues to hold the vital Strait of Hormuz under threat, so the vital shipping route remains virtually closed. About 20 percent of the world’s oil passes through the Strait of Hormuz, but also other important raw materials, such as liquid natural gas and fertilizers.

International Energy Agency IEA stated last week that the war in the Middle East has already caused the largest oil production disruption in history.

“Much of the geopolitical risk was already priced in last week. Investors seem to be waiting for a real loss of production before prices push even higher,” Karobaar Capital’s investment manager Haris Khurshid told the news agency Bloomberg.

Buyers furious

Iran threatens ships passing through the Strait of Hormuz with drones and missiles, which has put insurers on their toes. A fully loaded VLCC tanker hauls around 2 million barrels of oil, so the value of the cargo may reach hundreds of millions of dollars.

Saudi Arabian Oil Company Aramco announced in a letter sent to its buyers over the weekend that the company does not know which port will be used for April oil shipments. It helps Saudi Arabia that it can also transport oil through the Red Sea instead of the Persian Gulf.

Aramco’s letter was not received positively by buyers.

“I should probably call Iran and ask when the war will end so I can get oil”, Aramco customer told Reuters.

Trump is gathering allies

President of the United States Donald Trump According to his speeches, he is trying to assemble a coalition that would open the Strait of Hormuz to tankers again. It is an expensive and risky operation, and Trump’s appeal does not seem to be at its strongest at the moment: at least many European allies, Japan and Australia, have already refused to send their fleet to help the United States in the operation.

According to the Financial Times Trump predicted a “very bad future” for NATO if the alliance does not help the United States in defeating Iran. Trump also puts pressure on China: the president Xi Jinpingin according to Trump, the meeting may be “delayed” if China does not help in opening the Strait of Hormuz.

What makes the situation in the Strait of Hormuz difficult is that the opening of the shipping route would probably require Iran’s approval.

A think tank Chatham Housen analyst Neil Quilliam summed it up as follows:

“If the US and Israel declare themselves the winners of the war on terms that Iran has not accepted, Iran would probably try to show it with mines and drones in the Strait of Hormuz.”

A representative of a Persian Gulf export company interviewed by Reuters said that his company’s tankers will remain in port until Iran gives its word on ending the attacks.