The oil sector has largely ignored the repeated attacks on ships in the Red Sea, but if tensions escalate and the Strait of Hormuz is disrupted, crude oil prices are likely to rise significantly, according to analysts, and in the words of head of oil research at Goldman Sachs, Dan Struyven, “If there is a disturbance in the Strait of Hormuz for a month, prices will rise by 20%.”
Struyven added that shipments could be redirected away from the Red Sea, but the crude oil would essentially be detained if the strait was closed. He added that any long-term interruption in the Strait may eventually lead to a doubling of oil prices, according to an interview with the American “CNBC”, which was viewed by “Al Arabiya Business”.
While Goldman Sachs believes that this scenario is unlikely, Bob McNally of the Rapidan Energy Group believes that there is a 30% risk that the conflict in the Middle East will expand to Iran and cause a physical interruption of oil flows in the Persian Gulf.
McNally, who served on the National Security Council in 2003 during the Bush administration, said tensions in the region are rising, and the market has not priced those risks appropriately yet.
Secretary of State Antony Blinken is heading to the Middle East for a week in an attempt to prevent the war between Israel and Hamas from escalating into a broader conflict.
Daniel Yergin, vice president of S&P Global, said geopolitical risks are now returning to the market. The price of US crude rose by $2.16 last week, while Brent crude rose by $1.72.
Yergin added: “We are starting to see an impact on oil prices, and the geopolitical risks coming to a market that is really dominated by supply and demand.”