Oil prices rose 8% on Monday, surpassing the symbolic $100 per barrel mark, after US President Donald Trump announced that he had ordered the US Navy to immediately impose a naval blockade on the Strait of Hormuz, AFP reports.
After falling to around $97 at the end of last week, the price of West Texas Intermediate (WTI) crude oil for May delivery rebounded on Monday, rising 8.44% to $104.72 per barrel at around 05:30 GMT, according to Agerpres.
Brent North Sea crude for June delivery, the global benchmark, was also trading at $102.16 a barrel, up 7.31%, after earlier gaining more than 8%.
The US military said it would impose a blockade on Iranian ports starting at 14:00 GMT on Monday following the failure of talks in Pakistan. However, the US military said it would allow ships not originating in or destined for Iran to transit the Strait of Hormuz, through which a fifth of the world’s oil supplies normally pass.
“The threats by the US president to impose a maritime blockade on Iran (…) are absolutely ridiculous and absurd,” said the head of the Iranian Navy, Admiral Shahram Irani.
After the failure of the Iranian-American negotiations this weekend, Pakistan, the host of the talks, called for the respect of the two-week ceasefire agreed by the two sides, which was due to expire on April 22.
“We are entering a new week of escalating conflict. Iran has said that any approach of US warships to the Strait of Hormuz would be considered a violation of the ceasefire agreement and would trigger a military response. The prospect of renewed fighting could disrupt markets and raise oil prices,” said Kathleen Brooks, an analyst at XTB. “The absence of an agreement means that the Strait of Hormuz remains closed and could become even more dangerous (…) The conflict is entering its sixth week and we could start to see the economic damage more clearly,” warned Kathleen Brooks.
“Even without a full resumption of hostilities, oil prices should remain high as long as the strait remains a flashpoint. The failure of negotiations is damaging to markets as it erases some of the gains (from the recent ceasefire). However, since diplomacy has not been completely abandoned, we are not automatically seeing a return to the panic levels reached at the beginning of the conflict,” says Charu Chanana of Saxo Markets. As a result, “the situation is reduced to uncertainty: neither war nor peace, and investors are in an unstable position (…) any information coming from Washington, Tehran or Israel can cause rapid fluctuations in the markets,” adds Charu Chanana.
The announcement of the naval blockade caused declines in Asian stock markets. At around 5:30 GMT, the Nikkei index of the Tokyo stock exchange was down 0.74% to 56,498 points. In Seoul, the main Kospi index fell 0.88%. Sydney lost 0.51%, Hong Kong’s Hang Seng index lost 1.14% and Taipei fell 0.09%.
“We expect increased volatility (…) Markets need to be patient because of the complexity of the peace process: a final agreement that would allow the reopening of the Strait of Hormuz in the first round of negotiations was clearly unlikely,” said Kathleen Brooks.
In parallel, the price of gold fell 2.2% on Monday morning to around $4,721 an ounce. Higher oil prices increase inflation risks, increasing the likelihood that central banks will delay or raise interest rates, which is a negative for gold, which does not earn interest to investors.