Oil prices surge as US set to block Hormuz
Oil prices surged and stocks sank on Monday after US-Iran peace talks fell apart and US President Donald Trump announced a blockade of the strategic Strait of Hormuz, adding to fears over the shipment of energy supplies from the Middle East.
The price of US crude rose 8 percent to $104.24 a barrel and Brent crude, the international standard, rose 7 percent to $102.29. Oil prices tumbled last week after the United States and Iran agreed to a ceasefire on April 7.
The US delegation led by Vice President JD Vance blamed Iran’s refusal to give up its nuclear program for the failure of the talks, while Tehran hit out at “maximalism, shifting goalposts, and blockade” by the United States.
Economic impact
The news dealt a blow to hopes for an end to the six-week conflict, which has sent shivers through the global economy.
Brent crude has swung dramatically since the Iran war broke out on Feb. 28, rising from roughly $70 per barrel before the war to at times more than $119.
Ahead of the peace talks on April 10, Brent for June delivery fell 0.8 percent to $95.20 per barrel.
Meanwhile equities fell across Asia, with Tokyo, Hong Kong and Seoul off at least 1 percent. Shanghai, Sydney, Singapore, Taipei and Jakarta were also down.
Japan’s benchmark Nikkei 225 lost 1.0 percent in morning trading to 56,357.40. Australia’s S&P/ASX 200 shed 0.5 percent to 8,913.50. South Korea’s Kospi dipped 1.1 percent to 5,795.15. Hong Kong’s Hang Seng slipped nearly 1.5 percent to 25,513.42, while the Shanghai Composite fell 0.2 percent to 3,976.57.
Analysts said global trading is expected to remain turbulent for some time. The prospect of the conflict continuing also ramped up inflation fears amid expectations interest rates would be kept elevated.
Blockade set Monday
Data on Friday highlighted the war’s impact on prices, with the US consumer price index spiking at 3.3 percent in March, its highest since May last year.
In another lengthy social media post, US President Donald Trump said his goal was to clear the strait of mines and reopen it to all shipping.
He said Iran must not be allowed to profit from controlling the waterway, through which a fifth of global oil and gas usually passes.
“Effective immediately, the United States Navy, the Finest in the World, will begin the process of BLOCKADING any and all Ships trying to enter, or leave, the Strait of Hormuz,” Trump wrote on Truth Social. “Any Iranian who fires at us, or at peaceful vessels, will be BLOWN TO HELL!”
He said the blockade would only apply to vessels traveling to or from Iranian ports.
But Iran’s Revolutionary Guards said its security forces had full control over the strait and warned enemies would be trapped in a “deadly vortex” in case of any “wrong move.”
Iran’s navy chief Shahram Irani called Trump’s threat “ridiculous and funny,” according to state TV.
The US Central Command said the blockade would be “enforced impartially” beginning Monday 1400 GMT (10 p.m. in Manila) “against vessels of all nations” entering or departing Iranian ports and coastal areas, including all Iranian ports on the Persian Gulf and Gulf of Oman.
It said it would still allow ships traveling between non-Iranian ports to transit the strait. Saudi Arabia, Iraq, the United Arab Emirates, Kuwait and Iran are all major exporters.
Traffic in the strait has been limited even with the ceasefire on April 8, with only more than 40 commercial ships having crossed the strait, according to marine trackers.
Resumption of war
Neil Newman, managing director, head of strategy at Astris Advisory Japan, said “The outcome of the talks was not really what people were hoping for, that’s for certain.”
“As we stand here at the moment, it doesn’t look very nice. Certainly, the oil prices are a big concern,” he said.
Nicole Grajewski, an assistant professor at Sciences Po’s Center for International Research in Paris, warned that a US blockade was “not a minor coercive signal” but rather an effective resumption of war.
Fawad Razaqzada, a market analyst at Forex.com, said: “The fundamental issue remains trust—or rather, the lack of it—between two long-standing adversaries who still appear some distance from common ground.”
Jim Krane, Energy Research Fellow at Rice University, said the blockade might be effective as a long-term strategy to impose pain on the Iranian economy, but would not be good as a short-term negotiating tactic when the oil market is already under strain.
“If the deficit to the oil market takes another jump it is going to impose pain on every person on Earth that’s subject to market oil prices,” he said.
Investors are also keeping an eye on attempts to resolve the conflict between Israel and Hezbollah.
“We will continue to work to stop this war, to ensure the Israeli withdrawal from all our lands, the return of all the prisoners, to rebuild our destroyed villages and towns, and the safe return of the displaced,” Lebanese Prime Minister Nawaf Salam said.
