Oil Soars To 5-Month Highs After US Strikes Iran Nuclear Site — Goldman Sachs Warns of 40% Spike If Hormuz Disrupted

The Middle East geopolitical tensions have sent oil on the boil as the threat of supply disruptions looms large.

The West Texas Intermediate (WTI)-grade of crude oil spiked over 2% in overnight trading on Sunday. Oil spiked past the $76-a-barrel mark to $76, marking a five-month high, before receding slightly. The black gold traded just above $75 at the time of writing.

The United States Oil Fund, LP (USO) is up 10% year-to-date, while the Invesco QQQ Trust (QQQ) ETF and the SPDR S&P 500 ETF (SPY),exchange-traded funds that track the Nasdaq 100 and the S&P 500 indices, have climbed 3.2% and 2%, respectively.

After the U.S. used B-2 stealth bombers to drop “bunker-busting” bombs on Iranian nuclear installations, the latter has reportedly retaliated by launching missiles at Israel. The Islamic Republic has also considered blocking the Strait of Hormuz, a narrow waterway connecting the Persian Gulf and the Gulf of Oman. It lies between Iran and Oman.

About 21 million barrels of oil passed through the strait each day in 2022, according to data provided by the Energy Information Administration. 

This accounted for  21% of the world’s total consumption.

The Strait of Hormuz is the primary export route for major OPEC members such as Saudi Arabia, the United Arab Emirates, Iraq, and Kuwait.

The strait is a major oil chokepoint, a term referring to a narrow channel along widely used global sea routes critical to global energy security.  A blockage at the chokepoint, even temporarily, can substantially delay supplies, leading to oil price hikes and shipping costs.

According to EIA’s estimates, about 80% of the crude oil and condensate that moved through the Strait of Hormuz went to Asian markets in 2022.

A retired shipping executive, however, shrugged off the supply threat. According to a Wall Street Journal report, Anthony Gurnee, a former longtime tanker-company executive, said, “It’s a bargaining chip. Once they use it, it’s gone.”

He also sees America’s Iranian operation as a long-drawn-out one. Any blockage by Iran would prompt a swift response by the U.S., he added. 

The U.S. has also reportedly sought China’s assistance to stop Iran from blocking the strait. 

In an interview with NBC, U.S. Vice President J.D. Vance said disrupting shipments through the strait would be “suicidal” for the Iranians. “If they want to destroy their own economy and cause disruptions in the world, I think that would be their decision,” he said.

A Reuters report, citing Goldman Sachs, said Brent crude oil would peak at $110 per barrel if the Strait of Hormuz oil chokepoint was halved for a month and stays down 10% for the following 10 months. 

Sparta Commodities senior analyst June Goh reportedly said there are alternative pipeline routes out of the Middle East. However, there would still be crude oil volume that can’t be fully exported out of the region if the strait is inaccessible. The Brent crude futures, a benchmark for the light oil market in Europe, Africa, and the Middle East, currently traded up 1.80% at $76.85.

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