After exchanging threats for so long, the US and Iran are now fighting openly. This time, the impact continues to hit the world's oil lifeline, the Strait of Hormuz.
Chain Attacks, World Growing Worried
The US launched its fourth missile attack on Iran in just a week on Sunday. This action followed Iran's attack on a Cyprus-flagged container ship, which left one crew member missing.
Iran did not remain silent, continuing to retaliate with drone and missile attacks on US allies across the Middle East, including Kuwait, Jordan and Qatar. Fortunately, so far the damage has been relatively contained and no serious injuries have been reported.
Trump himself confirmed that he ordered the attack, supposedly to "hold" Iranian forces accountable. In fact, a day earlier he had threatened to "rain Iran with 1,000 missiles" if his life was threatened.
Strait of Hormuz, the Most Feared Point in the Market
This is the part that makes the world market tremble the most. Iran announced that the Strait of Hormuz was “closed until further notice”, but the US military was quick to protest, saying that the passage was still open to all ships.
The international maritime monitoring body also confirmed that the southern passage of the strait was still operating, but that ship traffic that day was much quieter than usual. This situation has left all parties confused about the true status of this important strait.
The importance of Hormuz cannot be underestimated, because more than a fifth of the world's crude oil and liquefied natural gas have passed through it. It is no wonder that the UK, France and Germany have issued joint statements condemning attacks on these civilian ships.
The Impact on Oil, Dollar & Our Ringgit
When an oil route as important as Hormuz is at stake, market anxiety is inevitable, even though technically the route is still open. This kind of uncertainty alone is enough to shake world oil prices.
If tensions escalate to the point of actually blocking shipping in Hormuz, the impact on oil prices could be far worse than what has happened so far. This could also weigh on oil-importing currencies like the Ringgit, through soaring energy costs.
Meanwhile, risk-off sentiment has traditionally made the US Dollar the preferred choice of investors during such uncertain times, even though the US itself is ironically the source of the conflict. This pattern is a common pattern in the history of the forex market when geopolitical tensions flare.
Key Takeaways
US launches fourth attack on Iran in a week, Iran retaliates with attacks on US allies in the Middle East.
The status of the Strait of Hormuz has been a major source of confusion, with Iran saying it is closed, the US and maritime watchdogs saying it is still open.
The UK, France and Germany have condemned the attack on civilian ships and called for a ceasefire and resumption of talks.
The uncertainty in Hormuz has the potential to trigger volatility in global oil prices, even though the route has not been completely blocked.
Risk-off sentiment due to these tensions tends to support the US Dollar, while the Ringgit risks being pressured if energy costs continue to rise.
As long as the status of Hormuz remains unclear, the market is expected to remain cautious, as an oil route of this importance is rarely allowed to pass without a major reaction from the financial world.
