By Giulia Petroni
Oil erased earlier gains on Monday, but volatility remains high after the U.S. struck the core of Iran's nuclear infrastructure, stoking fears of disruptions to a vital route for global energy flows.
In mid-morning trade, Brent crude was down 0.1% to $76.91 a barrel, while West Texas Intermediate edged 0.2% lower to $73.66 a barrel. Both contracts had jumped around 3% earlier in the session. The European benchmark gas contract at the Dutch TTF hub rose 0.5% to 41.16 euros a megawatt-hour.
"Markets are still waiting to see what Iran will do next," analysts at Peak Trading Research said. "Hormuz is still open, trade is flowing, Iran's crude production facilities were untouched."
Brent has gained more than 10% since Israel's initial attack on Iran on June 13, with Goldman Sachs now estimating a geopolitical risk premium of $12 a barrel. The future price direction remains sensitive to Tehran's next move. Market watchers say the country could either pursue diplomacy or retaliate--potentially by targeting U.S. bases in the Middle East or through allied militias across the region.
The market's biggest concern is that Iran could disrupt flows through the Strait of Hormuz--a vital artery for about a quarter of the world's seaborne oil and one-fifth of global liquefied natural gas flows. Tehran holds a strategic position on the northern side of the strait, and could try to close it by attacking ships or laying mines.
So far, vessels linked to the U.S. have been passing through the strait without incident, according to the U.K. Maritime Trade Operations agency.
However, Goldman estimated Brent could briefly peak at $110 a barrel if flows through the waterway were halved for a month and remained 10% lower for the following 11 months. A drop in Iranian supply by 1.75 million barrels per day could instead push Brent to a peak of around $90 a barrel.
While OPEC could tap more than 5 million barrels a day of spare capacity to help cushion potential supply shocks, analysts note that most of the cartel's spare oil belongs to Gulf producers who rely on the Strait of Hormuz for exports.
"Any obstruction to the waterway may lead oil prices to spike to three digits, even though some of the crude volumes from the Gulf could be diverted via pipelines located in the UAE and Saudi Arabia," said Amena Bakr, Kpler's head of Middle East energy and OPEC+.
Only about 5 million barrels a day of oil exports could be diverted through Saudi Arabia's East West Pipeline and the United Arab Emirates' Adcop pipeline, out of a total of around 15 million barrels a day that typically pass through the strait, according to the data firm.
Meanwhile, there are no indications that the OPEC+ alliance will call an emergency meeting before gaining more clarity on the situation and its impact on global supply, Bakr said.
Still, persistently high levels of electronic interference continue to disrupt vessel signals and recent data suggests that some tankers are hesitating or diverting course near the Strait of Hormuz in response to growing regional uncertainty, according to Kpler.
Commercial vessels transiting the strait and surrounding waters also face greater risks of misidentification or collateral damage following the U.S. strikes, as Yemen's Houthi rebels had threatened to target American ships in the Red Sea if Washington entered the conflict.
While prospects of a global energy supply shock have increased, such a scenario still isn't the most likely outcome, according to Kallum Pickering, chief economist at Peel Hunt. "Aside from the OPEC shocks in the 1970s, past escalations in the Middle East suggest that disruptions to energy markets tend to resolve quickly," he said.
Write to Giulia Petroni at giulia.petroni@wsj.com
(END) Dow Jones Newswires
06-23-25 0523ET
