Oil prices surge as US plan to blockade Hormuz escalates energy crisis

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NEW YORK – Oil and natural gas surged as the US moved to blockade the Strait of Hormuz after weekend talks between Washington and Tehran failed to yield a peace deal, escalating a global energy crisis that has rocked markets.

The price of Brent crude, the global benchmark for oil, jumped 8.5 per cent to US$103.31 a barrel as at 4.40pm Singapore time. West Texas Intermediate crude, the US benchmark, climbed 8.4 per cent to US$104.68.

European gas futures spiked as much as 18 per cent.

US forces will begin implementing the blockade, which applies only to vessels entering or departing Iranian ports, from 10am New York time on April 13, the US Central Command said. Iran said it “won’t allow” the blockade to go ahead.

“The number we saw this morning... is not reflective at all of what could happen if the US really decides to go with this interdiction,” Onyx Capital Group managing director Jorge Montepeque said on Bloomberg Television. “It really makes no sense. It should be US$140, US$150.”

The US blockade would transform a regional fight into potentially a global fight, with a supply loss of up to 12 million barrels a day, Mr Montepeque said. Traders found it “too crazy” for both sides of the strait to be blocked, hence the relatively calm price reactions during the Asian session, he added. 

Global energy markets have been upended by the conflict, with higher oil and gas prices threatening to stoke inflation while slowing economic growth. There is now a desperate scramble among refiners and traders around the world for immediately available crude cargoes as physical supplies tighten.

US President Donald Trump told reporters that the action would be very effective, while earlier threatening to retaliate in the event of resistance by Tehran. In addition to the blockade, the US leader and advisers were looking at resuming limited strikes, the Wall Street Journal reported.

“What it does is inject an enormous element of additional risk and additional uncertainty,” former US ambassador to Saudi Arabia Michael Ratney told Bloomberg TV.

With some ships carrying oil bound for China, “is the US Navy going to blockade those, and thus set up a crisis in US-Chinese relations?” he added.

Hormuz, which links the Persian Gulf to global markets, has been effectively closed since the US and Israeli strikes on Iran began on Feb 28. Tehran has frustrated the White House by tightening its grip on the route, imposing fees on some vessels and keeping traffic at a fraction of pre-war levels.

Iran was still shipping crude and condensate out of the Persian Gulf in March, with China being the biggest export destination, although flows fell from a month earlier, preliminary tanker-tracking estimates compiled by Bloomberg show.

“It strikes me that that is quite an ambitious endeavour, and it doesn’t solve the problem of disruption,” Ms Mona Yacoubian, director of the Middle East Program at the Center for Strategic and International Studies, said of the US blockade plan. “It’s hard to make sense of it.”

If Iran did feel that its oil exports were threatened, it may push Houthi forces in Yemen to target transit through a choke point at Bab el-Mandeb, at the southern entrance to the Red Sea, Ms Yacoubian said. The Houthis entered the war in late March, and have the capacity to disrupt shipping

Oil flows via the Red Sea have become more important since the war erupted as Saudi Arabia boosted pipeline flows across the country to the port of Yanbu. On April 12, Riyadh said it had restored full capacity through the East-West pipeline, as well as output from the Manifa field after Iranian strikes. 

“The market got ahead of itself on de-escalation,” said Mr Haris Khurshid, chief investment officer at Karobaar Capital in Chicago, adding that the US blockade threatens slower shipping, delayed cargoes and costlier insurance. “That’s what actually tightens the market and shows up in the price.”

Producer group OPEC – which has already warned that damage to Middle East energy assets will have a prolonged impact on supply even after the war ends – is due to publish its monthly market report later on April 13, potentially offering fresh insight into the extent of the disruption. 

The breakdown in the US and Iranian talks represents a significant setback after a fragile ceasefire was agreed last week. Tehran characterised US demands as “excessive”, according to the semi-official Tasnim agency. US Vice-President J.D. Vance said Washington’s core goal was a commitment from Iran not to seek a nuclear weapon, but returned home without it.

Speaking to reporters at Joint Base Andrews, President Trump said “I don’t care if they come back or not”, when asked how long he would wait for Iran to come back to the negotiating table. BLOOMBERG