(April 2): Oil rallied after President Donald Trump said the US will hit Iran “extremely hard” over the next two to three weeks, as concerns linger about future energy flows through the vital Strait of Hormuz chokepoint.
Brent jumped above US$105 a barrel and West Texas Intermediate climbed toward US$104 after Trump’s rare prime-time address to the nation. He said countries that get oil via the strait should take the lead in protecting shipments, and that the waterway would open “naturally” after the war ends.
The conflict has effectively closed the strait, choking off supplies of crude, gas and products such as diesel to global markets, driving up energy prices and raising fears of an inflation crisis. Oil fell in recent days on optimism over a resolution, but Brent is still more than 40% higher than before the war.
“The market will now factor in an intensified military campaign,” said Vandana Hari, founder of analysis firm Vanda Insights. “He offered no clear timeline for ending the war, something crude had tentatively priced in.”
The standoff over Hormuz is the most pressing issue for energy markets. On Monday, Trump said the US will blow up Iranian infrastructure including power plants if the strait doesn’t re-open, but on Tuesday, he called on other nations to wrest control of the waterway. The United Arab Emirates is among Gulf nations calling on the United Nations to authorise force to re-open it.
Iran and Oman will decide the future of the strait, Iran’s Foreign Minister Abbas Araghchi said on Wednesday, state-run Press TV reported. Hormuz won’t be opened based on the “absurd displays” of the US president, state-run IRIB added, citing a statement by the Islamic Revolutionary Guard Corps.
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Even if the conflict ends within a few weeks, it will still take time for normal flows to resume through Hormuz, while some energy infrastructure has been damaged by the war and is facing lengthy repairs. A buildup of US troops in the region is also keeping the market on edge.
“Iran is very unlikely to agree to a temporary ceasefire if it opens the door to future rounds of conflict,” said Will Todman, senior fellow in the Middle East Program at the Center for Strategic and International Studies. “The Iranian regime feels that time is on its side — the longer it blocks the Strait of Hormuz, the more pain it imposes on the global economy.”
Trump has vacillated throughout the conflict — which is nearing its sixth week — between threatening a military escalation and saying a deal is imminent. He has dispatched Vice-President JD Vance to deliver an ultimatum to Iran to make a deal or face attacks on key infrastructure.
See also: Oil falls in choppy trade ahead of Trump speech on Iran war
Investors are piling into options contracts that would allow them to profit from nearly any outcome, whether it’s a quick resolution dragging crude lower, or a further spike. There have been a smattering of lottery ticket-type bets that the global oil benchmark could rally to US$450 a barrel.
The International Energy Agency executive director Fatih Birol warned that energy rationing may be coming soon to some countries as the oil supply shock deepens this month. Filling stations in France and Australia have already run dry.
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