Oil surges 20% as Iran war fuels supply fears

SINGAPORE, March 9 (Reuters) – Oil prices surged about 20% in early trade on Monday, hitting their highest since July 2022, as the expanding U.S.-Israeli war with Iran led some major Middle East oil producers to cut supplies and on concerns of prolonged disruption to shipping through the Strait of Hormuz.

COMMENTARY:

DANIEL HYNES, SENIOR COMMODITY STRATEGIST, ANZ, SYDNEY

“I think prices have rallied this morning on the reports that Middle East producers are now reducing output due to storage facilities filling up fast.

“I certainly think the spectre now of Middle Eastern producers curtailing output is going to keep those prices elevated. The next flag will be whether it eventually reaches a point where they have to start shutting in oil wells, which not only further impacts output but also delays a response once the conflict eases. That would potentially sustain those prices for much longer.”

VISHNU VARATHAN, HEAD OF MACRO RESEARCH, ASIA EX-JAPAN, MIZUHO, SINGAPORE

“A sudden supply shock reverberates well beyond just who is a net energy exporter and importer. There are acute supply chain effects beyond price, eating into margins. Even in places like Indonesia, where it is not unusual to see street protests when pump prices go up.

   “Asia takes the brunt of the sharp escalation in oil prices, and there are few places to run and hide. The dollar has to be the one outperforming, given Japan and Korea’s exposures here and the sharp pain that can be expected from Brent at $107.”

SAUL KAVONIC, HEAD OF ENERGY RESEARCH AT MST MARQUEE

“The market had been complacent about the scope and duration of the war and associated supply disruptions until last Friday.

   “It’s a case of the oil market that cried wolf. After three years of geopolitical risk premia rising only to fail to translate to supply disruptions, the market became complacent about the current events.

   “But this existential Iran war is the energy crisis scenario that has been wargame for 50 years, finally coming to the fore.”

BMI, A UNIT OF FITCH SOLUTIONS

“Our baseline scenario is that the conflict in Iran will be large but short-lived, though there is a clear risk of a prolonged war. Among emerging markets, the economic impact will be most pronounced in the Gulf Cooperation Council, reflecting the shock’s adverse effects on trade, logistics, tourism, and investment.

   “First, Pakistan and India are most vulnerable as they are energy importers with relatively high exposure to the Strait of Hormuz. Second, outside of physical trade disruption, Egypt and Turkey are most exposed. This is due to their high energy import bill, fragile external positions, large energy subsidies, and unanchored inflation. Third, commodity-producing economies in Sub-Saharan Africa and Latin America are least at risk, including Nigeria, Ghana, and Peru.”

MICHAEL MCCARTHY, CHIEF OPERATING OFFICER, MOOMOO, SYDNEY

“The threats to attack refineries are very concerning. Because it threatens the worst of all economic worlds. Cutting off 15%-20% of the world’s oil supply not only slows down every economy globally, but it also introduces an inflation impulse. And inflation plus slowing growth is stagflation, and that’s an economic disaster.”

MUYU XU, SENIOR OIL ANALYST, KPLER, SINGAPORE

“Oil prices have now gathered all the ingredients for a perfect storm… All compounded by a growing pessimism about a quick turnaround in the current situation.

“Now that the conflict has dragged into a second week and official/company statements increasingly point to preparations for a prolonged supply disruption, fears in the market are only intensifying, providing sustained support for oil prices. If the disruption in the Strait of Hormuz persists for another one to two weeks, we could see prices move toward $130–150/bbl.”

TONY SYCAMORE, MARKET ANALYST, IG, SYDNEY

“The violent reaction stems from the markets seeing no obvious offramp in the escalating Middle East conflict, now a high-stakes standoff where neither side appears willing to blink first. The risk of more lasting economic damage continues to build by the day.

“(U.S.) President (Donald) Trump has kept the aggressive rhetoric flowing, at times demanding unconditional surrender in the hope that unrelenting pressure will splinter the regime’s inner circle or prompt pragmatic concessions from elements within the IRGC. He also posted this morning that the oil spike is likely temporary — describing it as ‘a very small price to pay for the U.S. and World Safety and Peace.’ While that may hold true longer-term, no clear timeline has emerged.”

RICK WILKINSON, CEO, ENERGYQUEST, BRISBANE

“The traders are realising this could take a long time and won’t be solved quickly, and therefore they’ve started to move. The pricing is still relatively low, even at these prices. Oil prices have been this high before and for extended periods. So I’m not quite sure it’s a full race yet.

   “The biggest winner in all of this is Russia, because they have unutilised LNG capacity and they have additional oil capacity available. So it will be an issue. Issues in the Middle East are a great benefit to the Russian petroleum industry.”

VASU MENON, MANAGING DIRECTOR FOR INVESTMENT STRATEGY, OCBC, SINGAPORE

“Unless oil flows through the Strait of Hormuz resumes soon and regional tensions ease, upward pressure on prices is likely to persist.

“It is still uncertain whether Iran’s new Supreme Leader, Mojtaba Khamenei, will alter the geopolitical dynamic in the Gulf. However, given President Donald Trump’s earlier statement that the selection of Iran’s new leader is unacceptable to his administration, it is unclear whether this could lead to further escalation, including potential military actions aimed at destabilising or removing him.”

(Reporting by Rae Wee, Tom Westbrook, Emily Chow, Katya Golubkova, Helen Clark, Ankur Banerjee; Editing by Tony Munroe, Rashmi Aich and Sumana Nandy)