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Oil market experts have warned that the breakdown of peace talks between the US and Iran and Donald Trump’s plan for a naval blockade of the Strait of Hormuz would push up oil prices and worsen the global energy crisis.
Amrita Sen, founder and director of Market Intelligence at Energy Aspects, said she expected oil markets to open sharply higher on Sunday if the US followed through with a proposed blockade of the strait that would prevent Iranian oil from flowing to markets.
“Until now the US has allowed Iranian crude and product exports, and even eased sanctions so that more buyers could import these cargoes, as the US has been so focused on keeping oil prices low. But if there is a genuine blockade that’s another 1.5mn-1.7mn barrels per day of oil exports that would stall — on top of the 10mn b/d plus already halted.”
Trump’s announcement of a blockade of the Strait of Hormuz appeared to be an effort to pressure the Iran regime, which has maintained its ability to ship oil to key markets such as China during the conflict.
The reopening of the strait was a key sticking point in talks between the US and Iran to turn a two-week ceasefire that began last Tuesday into a more lasting peace. The talks broke up without a deal on Saturday.
About a fifth of global oil and liquefied natural gas supplies transit through the Strait of Hormuz, which is one of the world’s most important energy chokepoints.
Analysts said the US strategy to block the strait did not yet amount to a return to active combat. But it pointed towards an escalation that would increase concerns about a worsening shortage of key petroleum products, such as jet fuel and diesel.
“Escalation tends to beget escalation,” said Kevin Book, head of research at ClearView Energy Partners. “Blocking Iranian tankers could raise prices and worsen shortages.”
The plan also suggested Trump was willing to risk a prolonged disruption to supplies despite soaring US petrol and diesel prices.
“This shows that President Trump is willing to risk prolonged disruption going into summer driving season to preserve the zero-enrichment [of uranium in Iran] position,” said Helima Croft, global head of commodity strategy at RBC Capital Markets.
The US president has been able to keep oil prices relatively flat “by consistent signalling that he is calling time on the conflict”, she said. “A blockade could indeed shift market sentiment on duration and cause a convergence in the physical and paper market.”
The oil market settled lower on Friday and Brent crude posted its steepest weekly loss since August 2022 due to optimism that the US-Iran peace talks could lead to a deal. Brent futures settled down almost 1 per cent at $95.20 a barrel while West Texas Intermediate, the US benchmark, fell 1.3 per cent to settle at $96.57 a barrel.
Jorge León, an analyst at Rystad Energy, said he expected oil prices to jump back over $110 a barrel when trading resumes on Sunday night. “What matters is that the chances of a durable ceasefire have plummeted,” he said.
Bob McNally, founder of Rapidan Energy Group and a former White House energy adviser, said the big question now was whether Iran and its allies would retaliate against critical energy infrastructure in the region.
