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The war in and around the Persian Gulf shook the oil market, with the benchmark Brent crude oil price spiking more than 55% since the end of February. The monthly surge is set to be the highest in history, reflecting the shortage of the commodity amid the nearly total blockade of the Strait of Hormuz.
March brought dramatic volatility to the oil trade. Amid the relentless stream of incoming news of the destruction of infrastructure in the Persian Gulf region and beyond and the blockade of the Hormuz strait, versus the sporadic signs of the possibility of a letdown, the market for the commodity was for a few days split into three, with enormous spreads between prices.
Brent oil futures, the global benchmark, were looking today to close more than 55% higher than the settlement price for February 27. It was just before the weekend during which Israel and the United States attacked Iran. Such a monthly spike was never seen before.
Governments and companies worldwide are bracing for radical fossil fuel consumption cuts, which are seemingly unavoidable. In fact, some recession bets could already be calculated into the prices of oil contracts.
Further escalation possible
US President Donald Trump has urged Iran to make a deal and reopen Hormuz, threatening to destroy its power plants, the Kharg island – which is the site of the vital oil terminal – and potentially desalination facilities. Conversely, Secretary of State Marco Rubio said reopening the maritime passage is not among the war objectives.
Notably, Iran has struck a power and desalination plant in Kuwait, killing one worker, though the operations reportedly remained stable. Iran also hit a full Kuwait-flagged very large crude carrier, called Al-Salmi, off the coast of Dubai. The authorities of the emirate said the incident was contained, and that there was no oil leakage or injuries.
Houthi rebels, Iran’s allies in Yemen, have entered the conflict by attacking Israel. They also threatened to block Bab el-Mandeb, the strait between the Red Sea and the Gulf of Aden.
Arab economies set to lose up to USD 194 billion
The United Nations Development Programme calculated that the war would erase USD 120 billion to USD 194 billion from Arab countries’ gross domestic product.
Brent was changing hands for USD 107.66 per barrel in the afternoon trade. It was 1.1% in the red for the day and 56.6% higher on a monthly basis. Until now, the biggest surge was 46%, in September 1990, during the 1990-1991 Gulf War.
West Texas Intermediate was at USD 104.07 per barrel, or 55.3% up since the end of February. It is the highest monthly jump since the record of almost 90% in May 2020.
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