Iran’s parliament has voted to shut down the vital Hormuz shipping channel in retaliation against Donald Trump’s attack on the country, prompting fears of a sharp spike in oil prices that could cause a global recession.
A barrel of Brent crude was selling for about $77 on Friday, having risen by more than 10% since mid-June when Israel’s attack on Iranian nuclear sites prompted missile strikes from Tehran against Tel Aviv.
But Trump’s decision to follow Israel by launching a US attack on Iran has set off a chain of events that analysts warned could drive prices up much further when markets open at 11pm UK time on Sunday.
Map of Middle East showing strait of Hormuz
A fifth of the world’s oil consumption flows through the strait of Hormuz, which is a gateway out of the Persian Gulf.
The vote, reported by Reuters, is not binding because the final decision rests with Iran’s supreme national security council. But analysts were already predicting an spike of up to $5 before the result of the vote was known.
“An oil price jump is expected,” said Jorge León, the head of geopolitical analysis at the energy intelligence firm Rystad and a former official at Opec, the group of major oil-producing nations. “In an extreme scenario where Iran responds with direct strikes or targets regional oil infrastructure, oil prices will surge sharply. Even in the absence of immediate retaliation, markets are likely to price in a higher geopolitical risk premium.”
Brent crude, the traditional benchmark global oil price, could gain $3 to $5 a barrel when markets open, Ole Hvalbye, an SEB analyst, said in a note.
JP Morgan has previously forecast that the oil price could rise as high as $130 in the event that a sustained Middle East conflict closes the strait of Hormuz for an extended period.
Iranian officials have said they would block the strait if Tehran’s interests were threatened.
A prolonged closure could have huge knock-on effects for the global economy. An oil price shock would risk a period of high inflation, as motorists pay more for petrol and the cost of transporting goods soars.
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Brent crude settled at $77.01 a barrel on Friday, while the US West Texas Intermediate benchmark was at $73.84.
Some analysts have played down the risk of long-term disruption to shipping routes, pointing out that most of Iran’s oil exports to China pass through the strait of Hormuz.
If oil prices were to rise to $130, that would exceed levels reached in the aftermath of Russia’s invasion of Ukraine. The all-time high for Brent crude is $147.50, set in July 2008 just before the global financial crisis sent prices plunging.