(Bloomberg) — Oil surged with natural gas as the US vowed to blockade all vessels passing through the Strait of Hormuz that called at Iran ports or were headed there, deepening an unprecedented global energy shock.
Brent rose as much as 9.1% to near $104 a barrel, while European gas futures spiked almost 18% at one point. US forces will begin the blockade — which doesn’t apply to other ships risking passage through the contested waterway — from 10 a.m. New York time Monday, the Central Command said.
“This is very dangerous because, now, we are transforming a regional fight into potentially a global fight,” Onyx Capital Group Managing Director Jorge Montepeque told Bloomberg TV. Futures prices may not adequately reflect the risks, he said: “It really makes no sense — it should be $140, $150.”
Energy markets have been upended by the war in the Middle East, with higher prices threatening to stoke inflation while slowing economic growth. There’s now an urgent scramble among refiners and traders around the world for immediately available crude cargoes as physical supplies tighten. The US blockade followed the failure of peace talks with Tehran at the weekend.
President Donald Trump told reporters that the planned action would be very effective, while earlier threatening to retaliate in the event of resistance by Tehran. In addition to the blockade, the US leader and advisers were looking at resuming limited strikes, the Wall Street Journal reported.
Iran’s military adviser to the supreme leader, Mohsen Rezaee, said the nation “will not allow” such a US embargo and had leverage to counter it.
Hormuz, which links the Persian Gulf to global markets, has been effectively closed since US and Israeli strikes on Iran began in late February. Tehran has frustrated the White House by tightening its grip on the route, imposing fees on some vessels and keeping traffic at a fraction of pre-war levels.
On Monday, two fuel tankers were attempting to exit the Gulf via the Strait of Hormuz by sailing close to Iran’s coast, making them the first vessels to try to pass through since the US announced its blockade.
The US move injects “an enormous element of additional risk,” Michael Ratney, former US ambassador to Saudi Arabia, told Bloomberg TV. With some ships carrying oil bound for China, “is the US Navy going to blockade those, and thus set up a crisis in US-Chinese relations?” he added.
Iran was still shipping crude and condensate out of the Persian Gulf in March, with China the top destination, although flows fell from a month earlier, according to preliminary tracking estimates compiled by Bloomberg.
