(April 13): Oil gained at the open as the US moved to blockade the Strait of Hormuz after weekend negotiations between Washington and Tehran failed to yield a deal to end their conflict.
Global benchmark Brent gained almost 8% to US$102.39 a barrel, while West Texas Intermediate surged above US$103. US forces will begin implementing the blockade, which applies only to vessels entering or departing Iranian ports, from 10am New York time Monday, the US Central Command said.
European gas futures spiked as much as 18%, advancing along with crude.
Hormuz, the narrow waterway that is vital for the global energy trade, has been effectively closed since US and Israeli strikes on Iran began at the end of February. Tehran has frustrated the White House by tightening its grip over the past six weeks, imposing payments for some vessels and keeping traffic at a fraction of pre-war levels.
“It strikes me that that is quite an ambitious endeavor, and it doesn’t solve the problem of disruption,” Mona Yacoubian, a director of the Middle East Program at the Center for Strategic and International Studies, said of the US blockade plan. “It’s hard to make sense of it.”
Transits through the strait had seen an uptick on Saturday. On Sunday, however, two vessels attempted to make their way through the narrow thoroughfare only to abruptly U-turn as negotiations in Islamabad collapsed and an agreement over Hormuz remained elusive.
See also: European gas prices jump as Trump threatens Hormuz blockade
If Iran does feel that its oil exports are being threatened, it may push Houthi forces in Yemen to target transit through a chokepoint at Bab el-Mandeb, at the southern entrance to the Red Sea, Yacoubian said.
“Then, you really are in a world of hurt,” she said. “Experience suggests that the Iranians will not concede, but will respond in kind. That’s what we have seen over and over again.”
The breakdown in talks on Sunday, confirmed by both sides, represents a significant setback after a fragile ceasefire was agreed last week. Iran characterised US demands as “excessive,” according to the semi-official Tasnim agency. US Vice President JD Vance said Washington’s core goal was affirmative commitment from Tehran not to seek a nuclear weapon, but returned home without it.
See also: Saudi Arabia says East-West pipeline restored to full capacity
Saudi Arabia said separately on Sunday that it had restored full pumping capacity through the East-West pipeline, a vital cross-country link to the Red Sea, and output from the Manifa field.
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