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We’ve seen Brent Crude futures climb +6% in the last 24 hours as the Iranian government claimed they would be attacking oil vessels travelling through the Straight of Hormuz. In turn, that means we’ve seen Brent hit just south of a two-year high; the last time prices were at this level was in July CY24.
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Around 20% of global oil travels through that Strait, with a lot of that coming from Saudi Arabia – a Sunni Muslim country where Iran is Shi’ite, and where U.S. bases are held. It doesn’t take a genius to figure out the implications.
Saudi Arabia does have a pipeline that goes across to its Western coast, but oil moves slowly through pipes, and a pipeline isn’t exactly a target that can avoid a rocket strike. So these added factors in mind – including Iranian drone strikes on energy infrastructure in Saudi Arabia and other petrostates (or Gulf states) hosting U.S. bases, which is the real issue for Iran here – this, in aggregate, is what’s making oil traders go bullish on the price of black gold.
But they were higher overnight
Overnight Australia time, Brent Crude prices actually hit US$85/bbl – and perhaps they’d have kept climbing, had Trump not come out and said the U.S. will escort ships through the Strait of Hormuz.
More importantly, Trump, as the mouthpiece of Washington, ‘ordered’ shipping insurers to continue providing coverage for tankers travelling the Strait.
“Effective IMMEDIATELY, I have ordered the United States Development Finance Corporation (DFC) to provide, at a very reasonable price, political risk insurance and guarantees for the Financial Security of ALL Maritime Trade, especially Energy, traveling through the Gulf,” Trump wrote on his own social website.
“This will be available to all Shipping Lines. If necessary, the United States Navy will begin escorting tankers through the Strait of Hormuz, as soon as possible. No matter what, the United States will ensure the FREE FLOW of ENERGY to the WORLD.”
Upward reversal back on
That caused a situation where Brent Crude dropped back to US$80/bbl, briefly. But intraday the Australian trading session, it looks like market conviction in the ability of the U.S., or anybody, to truly guarantee protection through the Strait of Hormuz is now being questioned.
What we can see is a sharp upward spike back to US$82/bbl, which ultimately underscores the day-by-day volatility we can probably expect to see remain the status quo for at least the rest of this week – and possibly the rest of the month, if Trump’s erstwhile claims that Iran will be a four-week operation are anything to stand by.
And that poses interesting implications for inflation. At around US$80/bbl, Australian servo prices easily climb above A$2/L.
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