Oil price tops $120 a barrel after Trump warns Iran blockade could last ‘months’

Brent crude oil prices surged past $126 a barrel, reaching their highest point since 2022, following warnings from Donald Trump that a US blockade of Iranian ports could extend for months. This escalation occurred as peace talks between the US and Iran stalled. The blockade, coupled with Iran's response of restricting passage through the Strait of Hormuz, has significantly impacted global oil supplies, with estimates suggesting a daily drop of nearly 20 million barrels. Analysts warn that a prolonged closure of the strait could drive oil prices as high as $190 by August, potentially triggering a global recession and contributing to stagflationary shocks, evidenced by rising government bond yields.

Oil prices have surged above $117 per barrel following reports of an "extended" Iranian blockade. This blockade, implemented by Iran in response to US and Israeli strikes, severely restricts shipping through a vital strait that usually handles a fifth of global oil and LNG supply. Despite some vessels reportedly crossing the blockade, oil prices remain significantly elevated compared to pre-conflict levels. The US is maintaining the blockade to pressure Iran's economy, which is experiencing a deepening crisis with high inflation and a depreciating currency. Iranian officials claim they can withstand the blockade by using alternative trade routes.

Oil prices, specifically Brent crude, rose by 3 percent despite Iran's proposal to reopen the Strait of Hormuz. This offer, made to Pakistan, suggested deferring nuclear talks with the United States in exchange for unblocking the vital waterway. Traders remained concerned about the continued blockade, which has significantly reduced maritime traffic and global oil production. The Strait of Hormuz is a critical chokepoint for global fuel supplies, and Iran's threats have led to a drastic decrease in vessel transits. This situation has impacted global oil production, with estimates suggesting a reduction of 14.5 million barrels per day. The US has not yet publicly responded to Iran's proposal.

Following the collapse of ceasefire talks, US President Trump announced a naval blockade of Iran, causing oil prices to surge. Brent crude rose over 8% to above $103 a barrel, surpassing the $100 threshold for the first time since Tuesday. US Central Command clarified the blockade, set to begin Monday, will only target vessels traveling to and from Iran. This action follows previous US-Israeli strikes on Iran, which led to a de facto Iranian blockade of the Strait of Hormuz, a critical oil transit route. Despite a fragile truce in place until April 22, vessel traffic through the Strait has drastically decreased.

Oil prices surged on Sunday after the U.S. announced it would begin blockading Iranian ports on Monday. U.S. crude rose 8% to $104.24 a barrel, and Brent crude increased 7% to $102.29. The blockade, enforced by U.S. Central Command, aims to restrict access to all Iranian ports on the Persian Gulf and Gulf of Oman but will allow passage through the Strait of Hormuz for ships traveling between non-Iranian ports. The Strait of Hormuz is a crucial waterway for global oil shipping, with approximately a fifth of the world's traded oil passing through it daily. Analysts suggest the blockade could further tighten oil markets and potentially influence ongoing negotiations with Iran, though concerns exist about the potential for increased economic strain worldwide.

Amid a fragile ceasefire between the US and Iran, three oil supertankers exited the Strait of Hormuz on Saturday, according to shipping data. The vessels, the Liberia-flagged Serifos and the China-flagged Cospearl Lake and He Rong Hai, are each capable of carrying 2 million barrels of oil. The Strait of Hormuz is a critical chokepoint for global oil and liquefied natural gas shipments. The Serifos, chartered by Thai state-owned PTT and carrying crude from Saudi Arabia and the UAE, is expected to arrive in Malaysia on April 21. The Cospearl Lake, laden with Iraqi oil, is headed to China, while another tanker, Ocean Thunder, chartered by a unit of Petronas, transited the waterway last week.