Oil prices hit a five-month high over the weekend after the United States struck Iran’s nuclear facilities. Tehran retaliated with an attack on the US Al Udeid Air Base in Qatar, keeping global energy markets on edge.
But oil prices dropped sharply on Tuesday after it appeared that Iran was holding off further attacks for now, including avoiding closing the Strait of Hormuz, a critical chokepoint in global trade.
Brent Crude, the international benchmark for oil prices, has tumbled more than 5.6 percent so far in the trading day and is currently trading at around $66 a barrel.
One of Iran’s most significant potential retaliatory economic measures would be to shut down the Strait of Hormuz.
The narrow waterway is a key transit route for 20 percent of the world’s oil supply, as well as a broader trade corridor between Europe and Asia.
While Iran’s parliament has backed a proposal to close the strait, the final decision lies with the country’s Supreme National Security Council.
Iran has made similar threats in the past, including in 2018 during US President Donald Trump’s first term, after the US withdrew from the Iran nuclear deal brokered under former President Barack Obama.
A closure could involve laying sea mines across the strait – which at its narrowest point is just 33 kilometres (21 miles) wide – and even attack or capture vessels. As recently as March, the Revolutionary Guard seized ships it accused of smuggling diesel. Similar tactics were used during the Iran-Iraq War in the 1980s.
Shutting the Strait would send a jolt through global markets, though analysts believe there is enough spare capacity to blunt the immediate impact. Still, the risk of further volatility remains high, mirroring the energy market disruptions seen in 2022 following Russia’s invasion of Ukraine.
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