The ongoing tension in the Strait of Hormuz has increased the heartbeat of the economy of the entire world. The global oil market currently seems to be trapped in a deep whirlpool of uncertainty. On Tuesday morning the crude oil market took a turn again and a sharp jump in prices was recorded. The root of this is the huge tension going on between US President Donald Trump and Iran. On Monday, when Trump said that he had had ‘successful negotiations’ with Iran, markets around the world heaved a sigh of relief and oil prices fell by 10%. But, this relief lasted only for a few hours. The very next day, Iran openly refuted Trump’s claims, after which the market again burst into flames.
Market panic due to Iran’s counterattack
Donald Trump had claimed that a positive discussion had taken place with Iran and any attacks had been postponed for at least five days. However, the strong reaction from Tehran changed the whole picture. The Iranian administration vehemently denied these claims and seriously accused the US of lying to manipulate the financial markets. Iran termed Trump’s statements as just a ‘worn-out psychological warfare’. The direct effect of all this was that Brent crude rose by 1.1% and crossed $ 101 per barrel, while WTI crude also jumped by 1.8% to reach $ 89.71.
Will the price reach $150?
According to market experts, until the Strait of Hormuz becomes completely clear and safe for trade, this huge volatility in prices will continue. Meanwhile, the well-known financial institution ‘Macquarie’ has made a prediction which has drawn lines of worry on the foreheads of governments around the world. Macquarie estimates that if the Hormuz standoff is not resolved soon, crude oil prices could bounce back from its ‘floor’ of $85-90 to the range of $110-120. The most frightening thing is that if this strait is kept effectively closed till the end of April, then Brent crude can even touch the level of $ 150 per barrel. If this happens, freight transportation will become expensive and a new phase of inflation may begin.
India has ‘Plan B’ ready
Amidst this chaos all over the world, India seems to be finding a path to success with its excellent diplomacy and wisdom. While on one hand western countries are scared of this crisis, on the other hand some important trade and diplomatic avenues for India are not only open but are also proving to be effective. On Monday itself, two Indian LPG tankers were successful in passing through Hormuz safely.
Additionally, after the US temporarily lifted sanctions on offshore Iranian and Russian oil, international traders have agreed to offer Iranian crude at some premium to Indian refineries. This simply means that India has a very strong ‘Plan B’ ready to meet its energy needs without any hindrance. International Energy Agency (IEA) chief Fatih Birol has also indicated that if the situation worsens, additional ‘strategic reserves’ can be released into the market in collaboration with Asian and European governments.