Iran war: Oil rises as hopes for peace fade again

Brent crude’s price is trading near the $90/bbl mark once again, as de-escalation prospects between Washington and Tehran have diminished again, this week.

IMAGE: Flags of the US and Iran. Getty Images

The strength in Brent's price comes following Iran’s announcement of six sweeping preconditions to reopen the Strait of Hormuz earlier this week, and US President Donald Trump’s response to it.

Iran will consider reopening the critical waterway after all six demands are met, including a total cessation of US military action in Iran as well as an immediate withdrawal of all US naval and air forces from the Gulf.

In response, Trump demanded that Iran pay “compensation” to Washington for war-related damages.

“Also, with respect to the Iran negotiations, Iran should be responsible for the damages and death caused to the people of Lebanon, Syria, Yemen, and Gaza!” Trump said on social media platform Truth Social.

Meanwhile, a mere seven vessels have transited the strait in the previous day, down from 17 vessels a day earlier, maritime intelligence firm Windward reported, noting that traffic remains a tiny fraction of pre-war levels.

Global banks sound the alarm

The Bank of America (BofA) has warned that oil prices will continue moving higher if the US and Iran fail to reach an agreement to reopen the Strait of Hormuz.

BofA expected Brent’s price to range between $70-80/bbl “on the assumption” that some resolution to the conflict will be achieved, its head of commodities and derivatives research Francisco Blanch said in an interview with CNBC.

“But if we don’t [see any resolution], we’re going to keep creeping [oil prices] higher into the winter,” he added.

Given that certain volumes of crude are currently being diverted through the UAE and Saudi Arabia, daily transit via the strait must rebound to roughly 80 or 100 vessels to bring stability to energy markets, Blanch noted.

Iraq has managed to ship around 2 million b/d in August via the region, according to two analysts from ING Bank. Prior to the war, Iraq was exporting around 3.4 million b/d of oil through the chokepoint.

“The pattern keeps repeating — initial enthusiasm when negotiations appear promising, only for that optimism to dissipate just as quickly,” ING Bank’s analysts said.

By Aparupa Mazumder

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