Oil prices hit 5-month high, Asian markets plunge as Israel-Iran conflict spirals with US entry

In the range of options Iran has, its Parliament has approved the closing of the Strait of Hormuz. The final decision will be taken by the Supreme National Security Council, Iran’s Press TV reported on Sunday.

This Strait, in the territorial waters of Iran and Oman, accounts for around a quarter of global oil trade and 20% of liquefied natural gas supplies. Countries around the Persian Gulf like Iran, Saudi Arabia, and UAE, which happen to be major oil producers, depend upon the Strait of Hormuz to access the open seas.

With no sea route alternative, the blocking of the Strait would have ramifications for oil and LNG trade worldwide, leading to a sharp rise in prices. This fluctuation could then have a potential trickle-down effect on the prices of many other goods and commodities.

Europe and Japan are heavily reliant on imported oil and LNG, while the US is a net exporter. As the world’s third-largest consumer of crude oil with a high import dependency level of over 85 per cent, India is also extremely sensitive to oil prices.

Global markets

In the share market, S&P 500 futures was off a moderate 0.5 per cent and Nasdaq futures down 0.6 per cent. MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.5, and Japan’s Nikkei eased 0.9 per cent.

EUROSTOXX 50 futures lost 0.7 per cent, while FTSE futures fell 0.5 per cent and DAX futures slipped 0.7 per cent.

Meanwhile, US crude rose 2.8 per cent to $75.98. In currency markets, the US dollar was up 0.25 per cent against the Japanese yen at 146.415. This was after touching a one-month high earlier in the session.

The euro was 0.33% lower at $1.1484, while the Australian dollar, often seen as risk proxy, weakened 0.2% to $0.6437, hovering near its lowest level in over three weeks.

In commodity markets, gold edged down 0.1 per cent to $3,363 an ounce.

What analysts say

During tensions in the West Asia region in the past, oil prices have shot up by as much as 76 per cent and rose over 30 per cent on an average over time, according to JPMorgan analysts.

“Selective disruptions that scare off oil tankers make more sense than closing the Strait of Hormuz given Iran’s oil exports would be shut down too,” Vivek Dhar, a commodities analyst at Commonwealth Bank of Australia, told Reuters.