The world has just a few weeks before taking an economic toll from the re-escalation in the Middle East and the new halt to tanker traffic through the Strait of Hormuz, according to Fatih Birol, the Executive Director of the International Energy Agency (IEA).
The situation in the region has sharply deteriorated in the past week as Iran struck commercial vessels transiting the Strait of Hormuz, including two supertankers operated by the Abu Dhabi national oil company of the UAE, and the U.S. carried out a series of strikes on Iran and reinstated a naval blockade to prevent Iran-linked tankers from loading and exporting Iran’s oil.
Tanker traffic through Hormuz, which had just started to rebound in the three weeks following the signing of the U.S.-Iran memorandum of understanding, came to an abrupt halt late last week, with daily transits plunging to five-week lows. The previous rush of Middle Eastern producers to evacuate their oil amassed in the Gulf since the war began has stopped, and oil prices have risen by about 13% since last Friday.
The oil, bond, and equity markets started pricing in additional disruption to oil flows, and economists and governments are bracing themselves for another fuel price and inflation spike.
“If the Strait of Hormuz remains closed we may again have some difficulty for global economies, including those in the region and developing nations and Asia,” Birol told Bloomberg in an interview published on Thursday.
“It is not months, it is weeks” after which the strait needs to be “fully open, unconditionally open,” to spare the global economy from new challenges and slowdown, the head of the IEA said.
Currently, the real stress in the oil market is not crude, but very tight fuel markets, economists and oil analysts say. Meanwhile, Arsenio Dominguez, the Secretary General of the United Nations’ International Maritime Organization (IMO), said that navigation through the Strait of Hormuz is now too dangerous for ship owners and operators to brave the chokepoint.
By Tsvetana Paraskova for Oilprice.com
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