Concerns over a spike in prices centre on Tehran’s potential to close the strait of Hormuz, the narrow shipping lane between Iran and Oman and the world’s most strategically important oil route.
Some ship owners have already taken matters into their own hands after Thursday’s oil tanker attack, the second in as many months, by barring their oil-laden vessels from moving through the strait.
The owners are seeking safety assurances, and are understood to be in talks to secure a naval escort for their cargoes through the waterway, through which almost a third of the world’s oil shipping passes.
One senior London-based ship broker said a number of tankers in the area are unwilling to move without these assurances.
“They are very concerned. Think of the volume of traffic which goes through the strait every day. A naval escort for each laden tanker would take time. Most charters are taking a step back to assess what measures could be taken,” he said.
Donald Trump played down fears Iran might close off the strait. The US president told Fox News on Friday that if it did happen “it’s not going to be closed for long”.
Paolo d’Amico, the chair of the tanker trade group Intertank, said the industry is extremely worried. “We need to remember that some 30% of the world’s crude oil passes through the strait. If the waters are becoming unsafe, the supply to the entire western world could be at risk,” he said.
Around 18 million barrels of oil are forecast to travel through the straits every day in 2020. This is more than half the 29.8 million barrels produced by members of the Opec oil cartel.
It is also a major avenue for Qatar’s liquefied natural gas (LNG) exports, or roughly 30% of the global LNG trade. UK gas supplies would not be affected by a short-term closure of the strait.
One London-based gas trader confirmed that no UK-bound tanks were en route through the straits at the time of the attack. Europe also has plenty of gas reserves after a mild winter, which should mean most of Qatar’s shipments will head east to buyers in Asia.
A long-term closure or restriction of traffic, however, would undoubtedly lead to higher gas prices and an economic boom for exporters in the US and Russia, he said.
The oil price climbed by a relatively modest 4% to $62.64 a barrel after the attacks in the Gulf of Oman, which is the gateway to the strait of Hormuz for inbound vessels, but experts say a prolonged hiatus could trigger record oil prices and reignite the risk of a global recession.
“We’re talking hundreds of dollars,” said Chris Midgley, the head of analytics at the oil market specialists S&P Global Platts.
“This would have a dramatic effect on the whole economy, right down to consumer spending. Every major recession we have seen has been preceded by a ramping up of global commodity prices … this would raise a huge recessionary risk,” he said.
Midgley said he expected diplomatic efforts to see off the risk of a complete closure, but that the world was nonetheless closer than it has ever been to an energy chokehold.
“In the days when the US had a huge dependence on energy from the Middle East it had a huge military presence in the area to ensure that the straits would remain open. What is different today is that the US has its energy independence. This is a significant change,” he said.
The US shale revolution means the former energy importer will become a net exporter of oil for the first time this year.
A global escalation in oil and gas prices could provide an economic boom for the country, but Trump is likely to weigh the benefit against the impact on consumer energy bills.
“The US still has a strong incentive to defuse the situation, and China – which relies heavily on energy imports – will also be motivated to step in,” Midgley said. “A shutdown of the straits would be the ultimate ‘nuclear’ option for Iran,.”