Strait of Hormuz in focus as oil prices rise
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Kaveh Kazemi | Getty Images
Foreign tourists in veils seen on a passenger boat with the Iranian flag amass in the waters of the Strait of Hormuz on May 2, 2017 near Hormuz Island, Iran. An oil tanker is seen on the move in the background.
Iran has reportedly renewed its threat to close the Strait of Hormuz, the world’s busiest transit lane for seaborne oil shipments, prompting fears about the potential ramifications for oil prices and broader financial markets.
President Donald Trump‘s administration announced Monday that buyers of Iranian oil must stop purchases by May 1 or face sanctions.
The move, which took many market participants by surprise, ends six months of waivers which had allowed Iran’s eight biggest buyers of crude to continue to import limited volumes.
In response, Iran’s semi-official Fars News Agency quoted Revolutionary Guards General Alireza Tengseiri as saying that if Tehran was barred from using the Strait of Hormuz, they would “shut it down.”
Analysts at Barclays said in a research note published Monday that approximately 20% of all the sea-borne crude and condensates passes through the Strait of Hormuz.
“The short-term upside risk to prices is based on a) our view that Saudi Arabia’s response will likely be lower and slower compared to late last year and b) heightened risks of the closure of the Strait of Hormuz as a result of this action,” analysts at Barclays said.
The bank added that the Trump administration’s decision not to reissue waivers in May did not materially impact its view on longer-term prices.
International benchmark Brent crude traded at $74.17 Tuesday afternoon, up around 0.2%, while U.S. West Texas Intermediate (WTI) stood at $65.90, almost 0.6% higher.
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