Oil rates have started surging again after a brief lull. Crude oil skyrocketed 8% and climbed past the $100/bbl mark. The spike follows US President Donald Trump’s announcement of a complete blockade of the critical trade route via the Strait of Hormuz amid failed peace talks between Washington and Tehran.
In early Asian trade, crude oil prices jumped nearly 8%, with Brent crude quoted near the $103/bbl mark, while US crude, West Texas Intermediate, traded near the $105/bbl level. Additionally, European gas futures also rose by a whopping 18%.
3 key factors fuelling the crude surge
#1 US Blockade of Strait of Hormuz
US President Donald Trump asserted that the US would blockade the Strait of Hormuz until all tanker movement is allowed through the passage. The US military said this closure would come into effect today, starting at 10 am ET (7:30 PM IST), blocking all vessels entering and exiting through Iranian ports.
The uncertainty has caused significant disruption in the oil and energy markets, as the Hormuz route transits nearly 20% of global energy flows. It also becomes a worrying factor for Indian markets, as the country is a net importer of oil. The Strait of Hormuz has remained largely shut since the start of the US-Israel conflict with Iran on February 28.
Adding to the stress, Mohammed Bagher Ghalif, Iranian Parliamentary speaker, said that the “so-called blockade” will cost Americans the nostalgia of gasoline prices at $4 to $5 per gallon.
#2 Failed peace talks between Washington and Tehran
The blockade comes following failed talks between the Iranian and US delegations in Islamabad. On Sunday, US Vice President JD Vance left Pakistan within just 21 hours, citing Iran’s refusal to abandon its nuclear weapons ambition. “This is bad news for Iran much more than this is bad news for the US,” Vance told the press in Islamabad.
While the US 15-point proposal includes restricting Iran’s nuclear programme and reopening of the Hormuz route, the 10-point Iranian proposal included a guaranteed end to the war and Iranian control of the waterway passage, along with a complete stoppage of Israeli strikes on Lebanon.
Mona Yacoubian, director of the Middle East Program at the Center for Strategic and International Studies, told CNBC TV-18 that it is hard to make sense of the US plan. She added that if Tehran feels that its oil exports are being threatened, it may push Houthi forces in Yemen to target transit through a chokepoint at Bab el-Mandeb, at the southern entrance to the Red Sea.
#3 Dollar Index back to highs
The US Dollar Index, which gauges the strength of the greenback against a basket of six major currencies, was trading near the 99 mark, up 0.36% on the day. On Friday, the index was quoted near the 98 level. The surge in the dollar makes commodities like oil more expensive.
A high US Dollar Index (DXY) makes crude oil significantly more expensive for emerging Asian market economies (like India, Thailand, Philippines, South Korea, Indonesia, etc.).