Oil shock looms as Strait of Hormuz crisis fuels price fear

The intensifying Iran-Israel conflict has jolted global financial markets, with fears of a potential closure of the Strait of Hormuz—a vital conduit for 20 million barrels of oil and refined products daily — pushing oil prices towards $120 per barrel and threatening to reignite inflation worldwide.

- Issac John

While geopolitical tensions have long simmered in the Arabian Gulf region, the recent escalation is prompting more serious concerns about a possible supply shock that could upend the global economy and drive inflation to levels not seen since the early 2020s, analysts and market watchers argue.

The Strait of Hormuz, a narrow waterway in the Arabian Gulf handling 21 per cent of global petroleum liquids consumption, is a linchpin for energy markets. A prolonged disruption could destabilise economies, particularly in the GCC and energy-importing nations, by driving up costs for consumers and businesses.

Oil prices surged over 13 per cent after Israel’s airstrikes on Iranian energy infrastructure, including oil refineries and the Pars South gas field, before settling eight per cent higher on Friday.

Analysts warn that a sustained blockade of the Strait could push oil prices beyond $120 per barrel, potentially lifting the US consumer price index to five per cent. In May, US headline inflation was 2.4 per cent, with core CPI at 2.8 per cent, but rising energy costs could reverse this progress.

Critical chokepoint