Oil prices surge as Kharg attack raises stakes in Middle East conflict

SINGAPORE - Oil rose as much as 3.3 per cent on March 16 after US attacks on Iran’s main export hub in another escalation of the war despite US President Donald Trump’s call for nations to help safeguard the Strait of Hormuz.

Global oil benchmark Brent crude pared gains but was up 2.1 per cent to US$105.32 a barrel at 5.10pm Singapore time. US benchmark West Texas Intermediate crude rose 1.2 per cent to US$99.88.

Both contracts have surged more than 40 per cent in March to their highest since 2022, after the US-Israeli attacks on Iran prompted Tehran to halt shipping through the Strait of Hormuz, choking off a fifth of global oil supply in the biggest disruption ever.

“US strikes over the weekend on Kharg Island raised supply concerns, as most of Iran’s oil exports pass through it,” ING commodity strategists said on March 16.

While the strikes appear to have targeted military, rather than energy, infrastructure, they still pose supply risks since Iranian oil is about the only oil moving through the Strait of Hormuz for now, ING added.

Over the weekend, Mr Trump threatened further strikes on Iran’s Kharg Island, which handles about 90 per cent of its exports, after hitting military targets there, to spur a defiant response of more retaliation from Tehran.

Iranian drones hit a key oil terminal in Fujairah in the United Arab Emirates shortly after the Kharg attacks. Oil loading operations at Fujairah have since resumed, four sources said, but it was unclear if they were back to normal.

Fujairah, outside the Strait of Hormuz, is the outlet for about one million barrels per day of the UAE’s flagship Murban crude oil – a volume equal to about 1 per cent of world demand.

“The US is weighing high-risk ground options, including raiding nuclear sites for Iran’s enriched uranium, seizing the Kharg Island oil hub, and occupying southern Iran to protect the Strait of Hormuz,” SEB analyst Erik Meyersson said in a note.

“All of these imply significant escalation and require a tolerance for substantially higher risk.”

On March 15, Mr Trump said he was demanding that other countries help to protect the key energy route, adding that Washington was in talks with several nations about policing it.

The US is also in contact with Iran, Mr Trump said, but expressed doubt that Tehran was prepared for serious talks to end the conflict.

On March 15, the International Energy Agency said more than 400 million barrels of oil reserves will begin flowing to the market soon, a record draw aimed at combating price spikes caused by the Middle East war.

Stocks from countries in Asia and Oceania will be released immediately while those from Europe and the Americas will be available at the end of March, the agency said.

“As the conflict enters its third week, the lack of a clear denouement has left global markets increasingly worried about an uncontrollable escalatory spiral,” SEB’s Mr Meyersson said.

Still, US Energy Secretary Chris Wright said on March 15 he expected an end to the war within “the next few weeks”, with oil supplies rebounding and energy costs falling afterwards. REUTERS