If Iran is attacked by the U.S., it will try to use every tactic it can to gain the attention of the global powers, hoping it will put pressure on the U.S. to call off the attack. In my opinion, this will include jamming up the Strait of Hormuz with navy ships, commercial vessels and even mines. Iran will try to make it extremely difficult and dangerous for all the OPEC producers to get oil out of the region.
Wednesday’s 4% Jump Was Just the Beginning—More Spikes Coming
Wednesday’s 4% jump in crude oil markets was just a reaction to increased tensions. The market could add another 5% to 10% once the attack starts and likely another 10% if they successfully block the Strait of Hormuz. At that point, even if there is a ceasefire, the waterway could still be unnavigable due to debris and other large objects. These are the risks at stake now.
The Key Questions Traders Are Wrestling With Right Now
There is no question that this is bullish news, but the degree of bullishness will depend on a number of factors including: how long the military activity lasts? What regions inside Iran the U.S. attacks? They could hit military bases, oil facilities, nuclear sites. Can Iran successfully block the Strait of Hormuz to all tanker traffic and for how long? Then there is the possibility that Iran counter-attacks U.S. military bases around the world, or even U.S. domestic sites.
Remember Saddam Hussein Set His Own Oil Wells on Fire During Gulf War
These are the types of things that industry and hedge fund oil traders are considering at this time. They all impact oil to a certain degree, but I think the biggest concern is how long will these tensions or even a war last and who else will become involved? Will Iran drag allies China and Russia into this? Will Iran counter-attack Israel or facilities in Saudi Arabia, for instance? If you can recall the Iraq-Kuwait War in the 1990s, Iraqi leader Saddam Hussein, while under attack by the U.S., started firing SCUD missiles at Saudi Arabia and even set his own oil wells on fire.
Speculators Will Get Long, Shorts Will Cover—Another 10-20% Move Possible
The oil market is relatively calm at this time, in my opinion, but conditions could change really fast. Speculators will get long and shorts will be forced to cover aggressively, running the risk of another 10% to 20% spike in oil prices if a war were to start.
