European nations have declined to deploy warships to the Strait of Hormuz, even as US President Donald Trump warned that NATO could face “a very bad future” if member countries do not step in to help reopen the crucial shipping route.
Crude oil price on March 17
Brent crude futures rose $2.48, or 2.5%, to $102.69 per barrel at 0058 GMT, while U.S. West Texas Intermediate (WTI) crude gained $2.42, or 2.6%, to $95.92 per barrel.The Strait of Hormuz, a key chokepoint that handles about 20% of global oil and liquefied natural gas trade, has been largely disrupted by the US-Israel war on Iran, which has now entered its third week. The disruption has heightened fears of supply shortages, rising energy costs and higher inflation.
Several U.S. allies also pushed back against Donald Trump’s request on Monday to send warships to escort shipping through the Strait of Hormuz. The move drew criticism from the U.S. president, who accused Western partners of ingratitude despite decades of American support.The effective closure of the strait has forced the United Arab Emirates, the third-largest producer in the Organization of the Petroleum Exporting Countries, to shut in production. As a result, its output has fallen by more than half, two sources told Reuters.Meanwhile, the head of the International Energy Agency said member countries could release more oil to help ease rising energy costs, in addition to the 400 million barrels they have already agreed to draw from strategic reserves.
Where are prices headed?
Experts say oil prices could climb further if geopolitical tensions persist. Global crude prices may rise to $120 per barrel in the near term and could even reach $150 per barrel if the war continues for more than a month and tensions in West Asia remain elevated, according to Kayanat Chainwala, Assistant Vice President at Kotak Securities.
She added that crude prices below $110 per barrel can largely be managed within India’s current tax framework, giving the government some flexibility to absorb the impact.
However, if prices move into the $110 to $125 per barrel range, fiscal flexibility would start to tighten and earnings divergence across companies in the oil and gas sector could widen, says Elara Securities.
If crude prices climb above $125 per barrel, broader stress could emerge in the system. Earnings of oil marketing companies may weaken sharply, LPG subsidy burdens could rise significantly, and risks to LNG throughput may increase. In such a situation, the chances of policy intervention would also grow, it added.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
