Crude oil hit its highest level since 2022 amid reports that the U.S. is considering new attacks on Iran and President Donald Trump’s warning that his blockade of Iranian ports could last months. The price surge came as new economic figures show that high oil prices are stoking inflation and hurting growth.
Eurozone inflation rose to 3 per cent in April, up from 2.6 per cent in March. The latest reading surpassed the 2.9 per cent forecast by a Reuters poll of economists. April is the second consecutive month that inflation has exceeded the European Central Bank’s medium-term inflation target of 2 per cent.
Oil’s spike on Wednesday and Thursday seemed to indicate waning hope that the Strait of Hormuz would reopen soon, triggering concerns from some economists that the crippling cost for hydrocarbons could plunge the world into recession. Iran has said it will not reopen the strait until the U.S. ends its blockade on Iranian shipping.
U.S. seeks help from allies to reopen Strait of Hormuz as crude prices surge
In early London trading, Brent crude, the international benchmark, hit US$126 a barrel before traders pared back the gains to US$116. The two-day rally had lifted prices by about 13 per cent before the late morning price reversal.
The last time oil went above US$120 was in March, 2022, during the early stages of Russia’s invasion of Ukraine.
Hormuz, through which 20 per cent of the world’s oil and liquefied natural gas (LNG) shipments pass, has been almost totally closed since Feb. 28, when the U.S. and Israel began their bombing campaign against Iran. The Islamic Republic in response mined the strait and attacked some ships, preventing all but a few tankers from reaching world markets.
Sporadic peace talks since then have gone nowhere. A ceasefire has been in place since April 8.
Axios reported late on Wednesday that U.S. Central Command has drawn up a plan for “short and powerful” strikes on Iran that could include infrastructure targets. Admiral Brad Cooper, head of Central Command, is due to brief Mr. Trump on Thursday, boosting speculation that attacks are imminent. Mr. Trump told Axios that he plans to keep the U.S. blockade of Iranian ports intact.
“Trump has ripped away the security blanket the market was clinging to — the hope that the war was about to end,” said Robert Rennie, head of commodity research at Westpac Banking Corp. “Traders are now being forced to confront a much uglier reality: both sides still think they are winning, neither side has a clear incentive to negotiate, and energy prices are starting to accelerate higher.”
Asian markets lost ground as oil climbed. Hong Kong’s Hang Seng was down 1.28 per cent and Japan’s Nikkei lost 1 per cent. By Thursday mid-day Germany’s DAX index was up marginally and London’s FTSE 100 was up 1 per cent.
Hormuz’s shutdown removes about 20 million barrels a day of oil from the Persian Gulf. Some of the missing oil can be made up by higher production from other OPEC countries, inventory drawdowns and releases from government-controlled strategic petroleum reserves in the U.S. and elsewhere. But those efforts nowhere near cover the full loss, which is why prices have been rising.
In a new blog post, Oxford Economic said that oil prices could go to US$190 a barrel if Hormuz remained shut for six months. That price would surpass the all-time high of US$147 a barrel in 2008, just ahead of the global financial crisis.
Diesel and aviation fuel prices have climbed even faster. Many airlines are cutting back their flight schedules for fear of fuel shortages, and raising ticket prices and adding fuel surcharges. In the U.S., diesel has climbed almost US$2 a gallon over their average price a year ago, according to the AAA Fuel Prices monitor.
Jet fuel shortages are hitting the European travel market and the worst is yet to come if Hormuz stays blocked
Rising fuel prices are stoking inflation everywhere. U.S. annual inflation climbed to 3.3 per cent in March.
Economic expansion is also slowing. New figures show that Eurozone growth slowed to 0.1 per cent in the first quarter of the year following growth of 0.2 per cent in previous quarter. Germany’s growth remained intact but France’s was stagnant.
Since the first quarter included only one month of the war on Iran, economists are warning that the second quarter figures could be weaker.
On April 20, economist Paul Krugman, a former New York Times columnist, said in his Substack, “In my view, a full-on global recession is more likely than not if the strait remains closed for, say, another three months, which seems all too possible.”
The International Energy Agency said the Hormuz shutdown has delivered the world the biggest energy supply shock in history.
Hormuz’s shutdown is putting agriculture markets under stress. Between 20 and 30 per cent of global fertilizer exports normally pass through the strait. Shortages of natural gas-derived urea and ammonia are pushing prices up.
“Higher prices could reduce fertilizer use and lower crop yields if the disruption persists, posing significant food security risks,” the International Food Policy Research Institute said in an early April report. “Most vulnerable are countries heavily dependent on Persian Gulf fertilizer and natural gas, especially in Africa and South Asia.”
