Strait of Hormuz closure risk may push Brent crude to $90, warns Citigroup

A potential shutdown of the Strait of Hormuz amid rising Gulf tensions could trigger a sharp but brief surge in crude prices, according to Citigroup analysts tracking energy markets

Brent crude prices could surge to nearly $90 a barrel if the Strait of Hormuz were to be closed, Bloomberg reported citing Citigroup Inc. Analysts at the bank, including Anthony Yuen and Eric Lee, said such a scenario would trigger a sharp but likely short-lived price spike. 

“Any closure of the Strait could lead to a sharp price spike,” the analysts wrote in a recent note, referring to the bank’s bullish case. “But we think the duration should be short, as all efforts would focus on a reopening, so that it should not be a multi-month closure.”

 

Strategic waterway moves 20% of oil

The world depends heavily on oil, and a big part of that supply moves through the Strait of Hormuz. 

As tensions grow between Iran and Israel, this narrow waterway in West Asia is once again at the centre of global concern. Just 33 kilometres wide at its narrowest point, the Strait of Hormuz is one of the most important oil routes in the world. Its role is especially critical for energy-importing countries like India. 

The Strait of Hormuz, a critical chokepoint at the entrance to the Persian Gulf, sees the transit of nearly 20 per cent of the world’s daily oil output. Crude shipments from key OPEC members like Saudi Arabia and Iraq pass through the narrow channel, making it vital to global energy markets. Citigroup’s scenario assumes that up to three million barrels per day could be disrupted over a period of several months if the strait were blocked, the news report said.   

  

Muted impact on crude prices

While tensions in the region also raise concerns about Iranian oil supply, Citigroup believes any interruption to Iran’s crude exports would likely have a muted effect on prices. The bank noted that Iran’s shipments have already been declining, with Chinese refineries — key buyers — reducing their purchases.       

  Any move to block the Strait of Hormuz would raise serious concerns around the world, as it could affect a large part of the global oil supply. 

As of now, Brent futures are trading at around $77 per barrel. The possibility of a geopolitical escalation in the Gulf region continues to be a key factor to watch for energy markets.

 

Israel-Iran conflict

A missile fired from Iran struck the main hospital in southern Israel early Thursday, wounding several people and causing significant damage. While the injuries were not life-threatening, the facility reported extensive destruction. Israeli media broadcast visuals showing shattered windows and thick black smoke billowing from the site, the Associated Press reported.       

  Additional Iranian missiles struck a high-rise apartment complex in Tel Aviv and other locations in central Israel. According to Israel’s Health Ministry, at least 240 people were injured in the attacks, including four who are in serious condition.

 

Israel targets Khamenei, nuclear site

Israeli Defence Minister Israel Katz held Iran’s Supreme Leader Ayatollah Ali Khamenei responsible for the assault. “The military has been instructed and knows that in order to achieve all of its goals, this man absolutely should not continue to exist,” Katz said.

In retaliation, Israel launched an airstrike on Iran’s Arak heavy water reactor, a key site in the country’s nuclear programme. Iranian state television reported no radiation threat from the attack, noting that the facility had been evacuated beforehand.

 

‘Decision on Iran strike in two weeks’

In Washington, the White House said President Donald Trump will decide within two weeks whether to launch a military strike on Iran. The administration stressed that diplomacy is still on the table. 

“Based on the fact that there's a substantial chance of negotiations that may or may not take place with Iran in the near future. I will make my decision whether or not to go within the next two weeks,” White House Press Secretary Karoline Leavitt quoted Trump as saying.

 

[With agency inputs]