Oil prices rise sharply in market trading after U.S.-Iran attacks disrupt global supply

Oil prices rose sharply as market trading began on Sunday, as US and Israeli attacks on Iran and retaliatory strikes against Israel and US military installations around the Gulf has caused disruptions in the global energy supply chain.

Traders were betting that oil supplies from Iran and elsewhere in the Middle East would slow or even stop. Attacks across the region, including on two ships passing through the Strait of Hormuz, the narrow mouth of the Persian Gulf, could restrict countries’ ability to export oil to the rest of the world. That would likely lead to higher crude oil and gasoline prices, energy experts say.

West Texas Intermediate, the light, sweet crude oil produced in the United States, was selling for about $72 a barrel late Sunday, up about 8% from its trading price of about $67 Friday.

About 15 million barrels of crude oil per day – or about 20% of the world’s oil – are shipped through the Strait of Hormuz, making it the world’s most critical oil chokepoint, according to Rystad Energy. Tankers crossing the strait, bordered to the north by Iran, carry oil and gas from Saudi Arabia, Kuwait, Iraq, Qatar, Bahrain, the United Arab Emirates and Iran.

Iran temporarily closed parts of the strait in mid-February for what it called a military exercise. Further disruptions to this transport channel could lead to lower supply and higher oil prices.

Attacks across the region, including on two ships passing through the Strait of Hormuz, the narrow mouth of the Persian Gulf, could restrict countries’ ability to export oil to the rest of the world. That would likely lead to higher crude oil and gasoline prices, energy experts say.

“It’s really a simple economic equation of supply and demand,” laments Kelly O’Grady, CBS News MoneyWatch correspondent and co-host of “CBS Saturday Morning.” “If you were to decrease global supply by cutting off the Strait of Hormuz and preventing oil from flowing, you would see prices skyrocket.”

In this context, eight countries part of the OPEC+ oil cartel announced on Sunday that they would increase their crude production. The Organization of the Petroleum Exporting Countries, at a meeting scheduled before the war began, said it would increase production by 206,000 barrels per day in April, more than analysts expected. Countries that have increased production include Saudi Arabia, Russia, Iraq, United Arab Emirates, Kuwait, Kazakhstan, Algeria and Oman.

“About a fifth of the world’s oil supply passes through the Strait of Hormuz, a vital artery for global trade, meaning markets are more concerned about barrel-carrying capacity than spare capacity on paper,” Jorge León, Rystad’s senior vice president and head of geopolitical analysis, said in an email. “If flows across the Gulf are limited, additional production will provide limited immediate relief, making access to export routes far more important than overall production targets.”

Iran exports about 1.6 million barrels of oil per day, mainly to China, which may have to look elsewhere for supplies if Iranian exports are disrupted, another factor that could increase energy prices.

O’Grady stressed that any action to block the Strait of Hormuz would be self-destructive for Iran.

“Remember, Iran’s revenue comes primarily from oil that it’s willing to sell to countries like China who will buy that sanctioned oil. And so if they cut that off from other countries and other buyers, they’re doing that to themselves as well,” she said.

“Now, of course, this is an existential moment for Iran. They could choose to move forward with this. But everyone I talk to says that’s an unlikely and extreme scenario. But what you’ll see is the shipping companies saying, ‘I just don’t want to go through that,’ or the insurers, who will raise the price to insure that oil. And all of those things trickle down to the price of oil.”