(Investing) – Oil prices rose sharply Thursday, cresting above the key $100 per barrel level, after new Iranian Supreme Leader Mojtaba Khamenei warned that a critical waterway for global shipping will remain closed as the U.S. and Israel continue an assault of the country.
Khamenei — the son of former leader Ali Khamenei, who slain at the outset of the U.S. and Israeli strikes on Iran in late February — added that Iran would not shy away from “avenging the blood of martyrs” of the country. Iranian state media it was Khamenei’s first public statement since he replaced his father.
, the global benchmark, rose 8.9% to $100.12 a barrel by 10:33 ET (14:33 GMT), even after the International Energy Agency announced the release of record amounts of strategic oil reserves to help quell recent market ructions. Earlier in the week, Brent prices had surged as high as nearly $120 per barrel. Meanwhile, U.S. climbed 9.3% to $95.30 per barrel.
“The evolving situation is keeping a significant geopolitical risk premium embedded in energy markets,” Laurence Booth, Global Head of Markets at CMC Markets, told Investing.com.
Oil tankers attacked
Heightening worries over prolonged Middle East oil supply constraints, media reports said two oil tankers were attacked near Iraq and Kuwait. Footage of the event, shared online, showed the tankers engulfed in flames, with Iraqi channels attributing the strike to Iran.
Farhan al-Fartousi, director of Iraq’s General Company for Ports, told The Wall Street Journal that one sailor had been killed and that Iraqi rescue teams were evacuating crew members from the two vessels, which were still burning. He added that Iraq had shut all its oil ports and that fuel had spilled into the sea.
A third ship was hit by an unknown projectile near Dubai as well, the United Kingdom Maritime Trade Operations, a maritime agency, said. Separately, Oman and Iraq have reportedly closed oil terminals in the wake of the attacks.
Reuters also reported that China had immediately banned all exports of refined fuel in March, as it moved to prevent a potential domestic fuel shortage due to the Iran conflict. The development was the latest sign of the widespread impact of the more than week-old U.S. and Israeli assault on Iran on regions far beyond the Middle East.
Yet oil markets remained focused on the Strait of Hormuz, a critical shipping choke point south of Iran that hosts a fifth of the world’s oil and liquefied natural gas supply. Container companies, keen to protect crews and struggling to find insurance, have all but halted sailings in the narrow waterway.
ANZ analysts flagged in a note that markets were still underpricing the likely duration and disruptions caused by the conflect.
“Once a conflict extends beyond the initial shock phase, oil markets tend to shift from pricing uncertainty to pricing endurance,” ANZ analysts said. “At that point, the key question is no longer whether supply is disrupted, but how long producers can physically sustain output under deteriorating operating conditions.”
IEA warns of historic disruption
The war in the Middle East is creating the largest supply disruption in the history of the global oil market, the International Energy Agency said in a report on Thursday slashing its annual supply outlook, shortly after the group announced its biggest-ever oil stock release.
In a report, the IEA said crude and oil product flows via the strait have slowed to a “trickle” from around 20 million barrels per day before the outbreak of the war in late February. With limited capacity available and storage filling up, key producing countries in the Gulf region have had to cut total oil output by at least 10 million barrels per day, the IEA said.
“In the absence of a rapid resumption of shipping flows, supply losses are set to increase,” the agency flagged.
Globally, oil supply is now tipped to slide by 8 million barrels per day in March, with curtailments in the Middle East only partly offset by higher output from Russia, Kazakhstan and nations not in the OPEC+ producer group.
The comments come after the IEA said it would release a record 400 million barrels of oil from its strategic reserves this week. U.S. President Donald Trump has also said the country will release 172 million barrels of oil from its emergency petroleum reserves.
Separately, data released on Wednesday showed U.S. grew a bigger-than-expected 3.8 million barrels in the prior week.
(Additional reporting by Ambar Warrick and Senad Karaahmetovic)
