As the ongoing war with Iran in the Middle East deepens its impact on energy markets, the closure of the Strait of Hormuz, a critical oil transit point, has led to a sharp rise in global oil prices.
As major producers in the region began cutting production, crude oil prices rose above $100 per barrel.
As of Sunday, the price of West Texas Intermediate (WTI), also known as US crude oil, rose 18.98 percent to $17.25, reaching $108.15 per barrel. Brent, the global benchmark oil, also gained 16.19 percent, rising $15.01 to $107.70. The nearly 35 percent increase in US crude oil prices last week marked the largest weekly rise in the futures market since 1983.
The rise in prices was largely driven by production cuts by major producers in the region. Kuwait, one of OPEC’s largest producers, announced “preventive cuts” in oil production and refining operations due to Iranian threats against ships passing through the Strait of Hormuz. The state-owned company Kuwait Petroleum Corporation did not provide details on the extent of the cuts.
In Iraq, production is experiencing a dramatic decline. Production at the country’s three major oil fields in the south has reportedly fallen by approximately 70 percent from pre-war 4.3 million barrels per day to 1.3 million barrels per day. Industry sources say this decline is putting significant pressure on global supply.
The United Arab Emirates was also among the countries that reduced their production levels. The third-largest producer in OPEC said it was carefully adjusting offshore production levels to manage its storage capacity. Abu Dhabi National Oil Company (ADNOC) reported that onshore production operations were continuing as normal.
The reason behind the Gulf countries beginning to cut production is the rapid filling of storage facilities due to the inability to transport oil. While approximately 20 percent of the world’s oil consumption is transported via the Strait of Hormuz, tanker companies are reluctant to pass through this narrow waterway due to the risk of attack from Iran.
Signs that the war will end in the short term are limited. Although US President Donald Trump claims the conflict is “already won,” tensions in the region persist. News reports suggesting that Mojtaba Khamenei, son of Ayatollah Ali Khamenei, is being presented as the new religious leader in Iran also point to the ongoing crisis.
US Energy Secretary Chris Wright said that resuming tanker traffic in the Strait of Hormuz would take time, but could happen within weeks, not months. In an interview with CNN, Wright stated that the US had largely eliminated Iran’s ability to threaten tankers and that ship passage through the strait could gradually return to normal.
While the volatile movements in the oil market are being closely monitored in the cryptocurrency market, the leading cryptocurrency Bitcoin is trading at approximately $65,683 during the same period. Following the drop in oil prices, the $BTC price experienced a 1.82% decrease in one hour.
A graph showing the drop in $BTC price.
*This is not investment advice.