Tensions in Hormuz: Middle East conflict spikes oil prices

The situation in the Middle East is becoming increasingly tense. At the beginning of the week, Israel launched an attack on Lebanon, which responded with a retaliatory strike, firing hundreds of rockets. The United States has become involved in the dispute, pledging assistance to Tel Aviv.

The conflict in the Middle East seriously threatens the stability of oil prices. By Tuesday morning, the commodity was cheapening, reaching a price of 89 Canadian dollars, one of the lowest for the year. However, after Lebanon initiated the attack, prices surged sharply and by Wednesday exceeded 98 Canadian dollars per barrel for crude oil. Gold prices also rose.

In his analysis, an expert at XTB emphasizes that Tuesday's events hit the stock exchanges. American indexes were dragged down mainly due to a statement by the White House spokesperson suggesting that Iran is preparing a response to Israel's recent military actions. Nasdaq lost the most (-2 percent), followed by the recent leader in growth, the Russell 2000 (-1.9 percent), then the S&P500 (-1.15 percent), and finally the Dow Jones (-0.6 percent), he explains. European indexes were also in retreat. The German DAX lost 0.7 percent, the French CAC40 is listed 1 percent lower, the WIG20 is down by 0.4 percent, while the exception is the British FTSE 100, which gained 0.5 percent.

The Strait of Hormuz, between the Persian Gulf and the Gulf of Oman, may once again become a focal point. This strategic strait is the world's most crucial oil transit point, with about 20 percent of global oil supplies passing through it, translating to approximately 15 million barrels daily.

A potential blockade of the Strait of Hormuz would have catastrophic consequences for the global economy. It would cause significant delivery delays and increased transport costs, inevitably leading to a sharp rise in oil prices in global markets. Fuel market experts predict that in the event of a blockade of the strait by Iran, the price of oil could reach as much as 204 Canadian dollars per barrel. On the other hand, in a de-escalation scenario, prices could fall below 109 Canadian dollars per barrel.

Cargoes from key oil producers in the region, such as Saudi Arabia, Iraq, Iran, Kuwait, Qatar, Bahrain, and the United Arab Emirates, pass through the Strait of Hormuz. The main recipients of these supplies are China, India, Japan, the United States, and Western European countries. Although Saudi Arabia and the UAE have pipeline infrastructure that could partially compensate for a potential blockade, it cannot fully replace maritime transport.

Iran, which controls part of the territorial waters through which the navigation route passes, is crucial for the functioning of the strait. In the event of an escalation of the conflict and a potential attack by Israel on Iran, oil prices could reach an astronomical level of 340 Canadian dollars per barrel. It is worth noting that Iran is one of the most important oil producers and a major sponsor of organizations such as Hezbollah and Hamas, which aim to destroy Israel.

History shows that Iran has repeatedly threatened to block the Strait of Hormuz in response to various international actions, such as sanctions or withdrawal from nuclear agreements. However, experts believe that an actual blockade is unlikely, as it could be met with a firm response from other oil producers in the region and international forces.

An expert shares the same opinion. Iran has no threat of a military blockade of the Persian Gulf. Still, an increase in attacks by Yemeni Houthi militias on civilian ships in the Red Sea is possible.

It is also worth noting the importance of the Bab al-Mandab Strait, located between Yemen and Ethiopia. This strait, the third most important sea route for the transportation of energy resources, connects the Indian Ocean with the Mediterranean Sea through the Red Sea and the Suez Canal. A potential escalation of the conflict between Israel and Iran could also threaten the security of this trade route.

Global markets are closely watching the current situation in the Middle East. A potential blockade of key maritime routes could have far-reaching consequences for oil prices and the entire world economy. This would increase geopolitical tensions and could pressure European politicians regarding the sanctions imposed on Russia.

In response to repeated threats from Iran, many Western countries, including the United States, the United Kingdom, France, and India, maintain their military presence in the region. This aims to ensure freedom of navigation and deter Iran from escalating the conflict. The situation remains tense, and the world is anxiously watching the developments in the Middle East, aware of the potential consequences for the global economy and energy security.