(April 13): Oil prices should be much higher than current levels if the US goes ahead with a planned naval blockade of the Strait of Hormuz, according to a veteran oil market executive.
Brent crude surged above US$103 a barrel on Monday after weekend talks between Washington and Tehran failed to reach a deal, escalating a global energy crisis that’s shaken markets. US forces will begin implementing the blockade, which applies to all vessels entering or departing Iranian ports, from 10am New York time Monday.
“The number we saw this morning — US$103; 8% increase — is not reflective at all of what could happen if the US really decides to go with this interdiction,” Onyx Capital group managing director Jorge Montepeque said on Bloomberg Television. “It really makes no sense. It should be $140, $150.”
The US blockade would transform a regional fight into potentially a global fight, with a supply loss of up to 12 million barrels a day, Montepeque said. Traders found it “too crazy” for both sides of the strait to be blocked, hence the relatively calm price reactions during the Asian session, he added.
“This is, in one word: demented,” Montepeque said in an interview with Haslinda Amin. “It makes no sense what the US is doing because they are so focused on Iran that they are losing sight of what they are causing to the world. And the pain is in Asia, the pain is in the South Pacific, the pain is in anybody that depends on oil.”
Oil prices may be around US$100 a barrel for rest of the year if Trump dials back some of his actions, according to Montepeque.
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