Qatari Airspace Closed, Hormuz Under Threat

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Written by Daniel Graeber for Industrial Info Resources (Sugar Land, Texas)--Crude oil prices spiked on Monday after Iran's parliament voted to close the Strait of Hormuz in response to the U.S. missile strike on its nuclear facilities.

The price for Brent crude oil, the global benchmark, had threatened to dip into the $50 range early this year amid concerns that protectionist U.S. trade policies would undermine growth. But a pre-emptive strike on Iran from the Israeli military on June 13 brought in a risk premium for the oil benchmark.

Ole Hanson, the head of commodity strategy for Saxo Bank in Denmark, said in a Monday newsletter that risk premium for oil can't be sustained for long unless there's a physical market disruption, though supply chains may already be impacted.

"Even without a full-scale disruption, the mere threat of interference in the Strait of Hormuz could delay shipments and trigger a sharper-than-expected short-term spike in prices," he wrote.

Brent in pre-market trading Monday was near $76 per barrel, a day after the Majlis, the Iranian parliament, voted to close the Strait of Hormuz through the Persian Gulf. Based on U.S. Department of Energy estimates, the strait carries around 20 million barrels of oil per day, or about 20% of the global trade.

Esmaeil Kowsari, a senior member of the Majlis, said the decision was made in response to the U.S. bombing of Iranian nuclear facilities during the weekend.

"The parliament has come to the conclusion that it should close the Hormuz Strait, but the final decision lies with the Supreme National Security Council," Kowsari was quoted by Iranian broadcaster Press TV as saying.

Two ships collided near Fujairah last week, though it was not a result of regional tensions. The maritime risk level for commercial shipping was raised, however, to "significant" by the U.K. Maritime Trade Operations office recently, citing concerns of direct or proxy attacks.

There are also concerns of electronic interference that would disrupt a ship's tracking signal. Dryad Global, a risk consultancy, has also seen vessel traffic drop off recently, showing shipowners are indeed exercising caution.

There's been little physical disruption yet to the oil market as sanctions limit what Iran, a founding member of the Organization of the Petroleum Exporting Countries, can put on the water. A look at publicly-available ship tracking data show cargo still moving through the waters off the coast of Iran, with the tanker Damsgaard on its way to the United Arab Emirates from Pakistan on Monday.

Elsewhere, IIR Energy had reported that Bazan Group (Haifa, Israel) shuttered its refinery in Haifa due to a power outage sustained during an Iranian missile strike. It could be down until at least June 25, sidelining some 197,000 barrels per day (BBL/d) in the process. There's been damage to Iranian facilities as well.

Flows in and around the Strait of Hormuz are already impacted by threats from the Houthi rebel group in Yemen, which enjoys military support from Iran. Houthi threats in the past have prompted some mariners to avoid the route altogether by taking the long way around the Cape of Good Hope off South Africa.

On Sunday, meanwhile, the U.S. State Department issued a global travel advisory for U.S. citizens traveling through the region.

"The conflict between Israel and Iran has resulted in disruptions to travel and periodic closure of airspace across the Middle East," the warning read. "There is the potential for demonstrations against U.S. citizens and interests abroad."

Qatari airspace was closed Monday after Iran said it launched a military attack on a U.S.-run airbase there.

Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking over 200,000 current and future projects worth $17.8 Trillion (USD).