Oil prices hit $112 as US considers extending Hormuz blockade
What's the story
Oil prices have witnessed a sharp rise on Wednesday, extending a multi-day rally. The surge comes after reports that the United States plans to extend its blockade of Iranian ports. This move is likely to further disrupt supplies from the key Middle East region. According to The Wall Street Journal, US President Donald Trump has asked aides to prepare for an extended blockade of Iran.
Economic impact
Trump likely to continue strategy of crippling Iran's economy
The report further states that Trump is likely to continue his strategy of crippling Iran's economy and oil exports by blocking shipping routes to and from its ports. The move comes as part of a broader US effort to curb what it claims is Iran's nuclear weapons program. Meanwhile, Iran is seeking reparations from the latest round of fighting, easing economic sanctions, and some control over the Strait of Hormuz as part of its peace proposal.
Market response
Geopolitical tensions push oil prices higher
The ongoing geopolitical tensions have had a direct impact on oil prices. Brent crude futures for June rose by 52 cents, or 0.47%, to $111.78 a barrel today, marking an eighth consecutive day of gains. The July contract was at $104.84, up by 0.4%. Similarly, US West Texas Intermediate (WTI) futures for June rose by 57 cents, or 0.57%, to $100.50 a barrel after gaining 3.7% in the previous session and rising seven out of the last eight days.
Future projections
Strait of Hormuz blockade could disrupt supplies
Yang An, an analyst at Haitong Futures, said the recent spike in oil prices is due to the Strait blockade. He added if Trump is willing to extend this blockade, supply disruptions would worsen and continue pushing oil prices higher. The ongoing US-Israeli war with Iran has also contributed to these tensions as Iran has shut shipping flows through the Strait of Hormuz, a channel for about 20% of global oil and liquefied natural gas supplies.