Oil Holds Higher, Trump Mixes Peaceful Signals with Threats
Oil prices maintained gains on Monday after US President Donald Trump said a deal to end hostilities in the Middle East was “very likely” to be reached, while simultaneously threatening to attack Iran’s energy infrastructure. Brent crude futures fluctuated following Trump’s post on Truth Social, but remained trading around US$115 per barrel, reflecting a market weighing diplomatic signals and the risk of escalation simultaneously.
Trump warned that if a deal isn’t reached soon and the Strait of Hormuz isn’t “open for business,” the US could target power plants, oil wells, and the Kharg Island terminal. Market risk remains concentrated on Hormuz, a strategic waterway through which about a fifth of the world’s oil normally passes. The conflict, now in its fifth week, is said to have almost completely frozen traffic through the strait, while market participants warn of broader price impacts if the disruptions continue.
Oil’s rally throughout March, with Brent crude up about 60%, was driven by concerns about a combination of rising inflation and slowing growth. Morgan Stanley assesses that the cumulative impact of the effective closure of Hormuz is now beginning to spread to end-user markets, as the accumulated supply losses are increasingly difficult to offset through stockpiles and rerouting.
On the shipping side, Iran is reportedly restricting most shipping but allowing some vessels from certain countries to pass through. Tehran is said to be attempting to formalize its control over the strait, while signs of limited easing are emerging through the number of vessels permitted to pass. Two state-owned Chinese container ships were also reported to have attempted to exit Hormuz on Monday, a move the market is watching as an indication of the still-fluctuating dynamics of passage permits.
Additional escalation comes from the Houthi involvement in Yemen, which is increasing risks in the Red Sea and potentially adding to supply bottlenecks if the threat extends to cargo from certain ports, including Saudi-linked routes. With the uncertainty surrounding the conflict and shipping routes, research institutions and investment banks are beginning to map out extreme scenarios, including projections that prices could spike sharply if Hormuz remains closed until mid-year.
The impact of the war is also beginning to spread to the Asia-Pacific. South Korea is considering expanding driving restrictions if oil hits US$120 per barrel, Australia plans to temporarily cut some fuel taxes, and Vietnamese airlines are reportedly reducing flights starting in April due to supply risks and jet fuel costs. At the last update, May Brent crude rose 1.9% to US$114.75 per barrel at 8:28 a.m. New York time, while May WTI crude rose 1.3% to US$100.98.
Causes: Energy risk premiums remain high due to the ongoing Strait of Hormuz blockade, widespread escalation (including the Houthis), and Trump's rhetoric combining negotiating signals with direct threats against Iran's energy assets.
Impact: Price volatility has increased, energy inflation pressures have intensified, and the risk of a growth slowdown has increased—as evidenced by response measures in several countries (transportation, fiscal, and aviation sectors). The market will monitor shipping status in Hormuz, follow-up US-Iran diplomacy, and the potential for additional disruptions on the Bab el-Mandeb/Red Sea route as factors determining the future direction of oil. (alg)
Source: Newsmaker.id
