The oil market is now bracing for any surprises after the United States (US) and Israel launched attacks on Iran last weekend.
The main concern is now focused on the possibility of the Strait of Hormuz, a vital route for world oil, being disrupted or completely closed.
Analysts expect oil prices to surge when trading begins in New York, but the real question is whether this tension will last and cause disruption to oil exports from the Persian Gulf.
Vandana Hari, CEO of Vanda Insights, stressed that a full-scale conflict between the US and Iran is currently underway and it is difficult to predict the next direction.
If Iran and its allies respond, major disruptions to Middle East oil flows could occur.
Unless the US manages to control the situation quickly and ensure that tankers can still pass through the Strait of Hormuz as usual.
The Strait of Hormuz, located between Oman and Iran, is a key global oil transit route. Around 13 million barrels of oil pass through this channel every day, representing almost a third of all oil shipped to sea.
It connects major producing countries such as Saudi Arabia, Iran, Iraq and the United Arab Emirates (UAE) to the world market.
According to a Reuters report, Iran's Revolutionary Guards reportedly warned commercial ships that the passage was off-limits.
However, Tehran has yet to officially confirm the order to close the Strait of Hormuz. Iran's threat to close the passage is not new as it is often used as a means of retaliating for attacks on their country.
However, Rapidan Energy Group President Bob McNally stressed that this development is serious for the oil and gas market because of the world's dependence on flows through Hormuz.
The determining factor for the actual impact will be how long and to what extent the disruption occurs.
If the Strait of Hormuz is actually closed, the impact on the oil market risks being worse than the Arab oil embargo and the Iranian revolution in the 1970s.
Oil prices could potentially soar to triple digits, while natural gas prices hit record highs last year.
Brent crude is now around $72.48 a barrel, up almost 19% this year, while US WTI crude is at $62.02, up 16%.
Andy Lipow, president of Lipow Oil Associates, said the risk of oil supply disruptions in the region has increased significantly after the attacks.
The worst-case scenario is an attack on Saudi Arabia’s oil infrastructure followed by a complete closure of the Strait of Hormuz.
The probability is estimated at around 33% because Iran could feel desperate and act drastically. If the Strait of Hormuz remains closed for a long time, the world could see an energy crisis that would shake the global economy.
Markets have begun to calculate the cost of risk to be much higher than previously expected.
