Oil price stays above US$100, Asian stocks fall as Iran's Khamenei targets Hormuz
Analysts say the record 400 million barrels released from International Energy Agency stockpiles had little impact.
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TOKYO: Oil prices held at around US$100 on Friday (Mar 13) and most equity markets dropped after Iran's leader called for the blocking of the crucial Strait of Hormuz and opening up of new fronts in the war against the United States and Israel.
With the conflict heading towards its third week and showing no signs of ending, investors are growing increasingly worried about an extended crisis that could fan inflation and hammer the global economy.
Tehran has targeted energy facilities this week across the Gulf, with ships hit near Iraq, fuel tanks attacked in Bahrain and drones fired at oil fields in Saudi Arabia.
And it warned on Thursday that it would "set the region's oil and gas on fire" if its own energy infrastructure and ports were targeted.
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In his first public comments since succeeding his father four days ago, Ayatollah Mojtaba Khamenei said the Strait of Hormuz - through which a fifth of global oil and gas passes - must remain effectively shut.
"The lever of blocking the Strait of Hormuz must definitely be used," Khamenei said in a message read by an anchor on state television.
Crude surged more than 9 per cent Thursday, with Brent ending above US$100.
It held there in early Friday business, with analysts saying the record 400 million barrels released from International Energy Agency stockpiles had little impact.
The IEA said Thursday that the war "is creating the largest supply disruption in the history of the global oil market".
But US President Donald Trump wrote on social media that defeating Iran's "evil empire" was more important than crude prices.
"With crude closing near its highs, markets are increasingly pricing in a longer duration for the conflict and the continued impact of a potential closure of the Strait of Hormuz," said Pepperstone's Chris Weston.
"Donald Trump may continue to explore the idea of assisting vessels through the strait, and if that were to materialise the market could see a strong relief rally.
"For now, however, the dominant features are higher energy prices and extremely elevated volatility markets."
As concerns over the impact mount, equity traders are taking flight, with Asian economies most at risk owing to their reliance on energy imports.
Tokyo, Hong Kong, Shanghai, Singapore, Seoul, Wellington, Manila and Jakarta were all down.
The dollar held its gains against major rivals owing to its safe-haven status, fears of inflation, and expectations that interest rates will remain elevated longer than expected.
Matt Weller, head of market research at City Index, warned that markets could be in for more pain after years of generally strong equity markets, subdued energy prices and broadly low interest rates
"Those trends have reversed, and the default assumption as long as the Strait of Hormuz remains functionally closed is that stocks will be under pressure, oil prices will trend higher, and interest rates will tick up in unison," he wrote.
"Unless or until we see meaningful progress toward a ceasefire in the Middle East, traders should shift their expectations that the coming weeks and months will look different than the past couple of years, weighing on risk appetite at an accelerating rate."
ENERGY & MARITIME RISKS TO PERSIST
Other energy analysts said emergency measures may struggle to fully offset the disruption if it continues.
Ben Cahill, director for energy markets and policy at the University of Texas at Austin, told CNA’s Asia First that while the coordinated 400 million barrel release is the largest in history, what matters is how quickly those barrels reach buyers.
In the US, for example, oil from the Strategic Petroleum Reserve typically takes nearly two weeks to arrive after authorisation, he said.
Cahill noted that some Gulf producers are redirecting volumes through alternative pipelines, and that Iran continues to export some oil despite the war.
Even with those adjustments, he said the remaining supply gap is significant: “This is just too big a market shortfall.”
Cahill added that the crisis is not only about oil. Qatar, which produces about 20 per cent of global liquefied natural gas (LNG), has halted output at key facilities after attacks on energy infrastructure.
An LNG disruption lasting about a month is “probably manageable”, Cahill said, but if outages extend beyond that, gas markets could tighten significantly, increasing pressure on energy-importing economies.
Ian Ralby, CEO of maritime security consultancy IR Consilium, said Iran may be better positioned than many countries to withstand prolonged disruption after years of sanctions and economic pressure.
Speaking to CNA’s Asia First, he said Tehran has demonstrated an ability to adapt in the maritime domain, employing unconventional tactics – including small craft, drones and other low-cost, high-impact methods – to sustain threats against merchant vessels in the narrow waterway.
Even if some of Iran’s traditional military capabilities are weakened, he said such lower-cost tactics could continue to keep commercial fleets on edge, complicating efforts to restore normal traffic.
He warned that convoys in the narrow and heavily trafficked waterway could also become targets, particularly if smaller, faster craft are deployed against them.
Escorting vessels through the strait would be “incredibly dangerous, difficult, and not in any way guaranteed", he added.
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