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The U.S. and Israel may have started this war with Iran from the skies but the front line has shifted firmly to the sea. Two tankers ablaze in Iraqi waters show how Iran is ramping up its attacks on shipping in the Persian Gulf, sending oil prices back above $100 a barrel despite a pledge from the International Energy Agency to release a record amount of crude.
The IEA says the war in the Middle East is creating the largest supply disruption in the history of the global oil market. The only way to get oil prices back down is to get shipping restarted in the Gulf and along the narrow Strait of Hormuz, where a fifth of global oil and liquefied natural gas normally passes. Good luck with that. Iran's Revolutionary Guards have repeatedly warned that any ship passing through the strait will be targeted and the attacks off the coast of Iraq, hundreds of miles north of Hormuz, show that they mean business.
Do you know who is getting oil out? Tehran. A Reuters review of tanker tracking data shows that Iranian crude is continuing to flow at a near-normal pace. And that pace could pick up in the days ahead: multiple very large crude carriers, the largest oil vessels in service, are still loading oil at Iran's Kharg Island export hub, according to satellite imagery reviewed by TankerTrackers.com.
Iran's ability to keep exporting oil without any reported interceptions contrasts sharply with what happened during the U.S. military campaign in Venezuela, which involved a naval blockade of the Latin American nation and seizures of vessels attempting to enter or exit Venezuelan waters.
But if the U.S. started seizing Iranian tankers now, it could up the ante even further, giving Tehran an incentive to shut the strait entirely - maybe by mining it. Sources have told Reuters that Iran has already deployed about a dozen mines in the strait.
President Donald Trump has said the U.S. is prepared to provide naval escorts to ships wanting to traverse the strait but that is not the message the shipping industry is getting. The U.S. Navy has refused near-daily requests from the shipping industry for military escorts since the start of the war, saying the risk of attacks is too high for now, according to sources familiar with the matter.
In the meantime, U.S. intelligence indicates that Iran's leadership is still largely intact and is not at risk of collapse any time soon after nearly two weeks of relentless U.S. and Israeli bombardment.
Caught in the middle of all of this are the Gulf countries. They are paying the price of this conflict with a barrage of Iranian strikes puncturing their image as a safe haven in an unsafe region. It’s also giving their sovereign wealth funds pause for thought. I dig into all of that on this week’s Reuters Econ World podcast with our Gulf Bureau Chief Maha El Dahan. Listen here.
Hopes of an imminent de-escalation in the conflict have evaporated, with global shares and bonds dropping as investors factor in the risk of rising inflation. Bets on an early end to the war, which gathered pace earlier this week, are being unwound, with nervous investors seeking the liquidity of dollars while shunning currencies from countries that are net energy importers, including Japan and much of Europe.
Consumers around the world are already seeing the financial hit from this conflict. Airlines are hiking prices to deal with a surge in jet fuel prices. And in India, hot food and drinks – even tea – are disappearing from the menu due to a nationwide shortage of cooking gas. Cooks are switching to simpler meals that use less fuel to make their liquefied petroleum gas stocks last longer.
The inflation risk has changed the mood music around a welter of central bank rate-setting meetings in Europe and the United States next week. No one is expecting the ECB to move imminently but markets are wagering its next rate move could be up, possibly as early as June. Markets are betting on just one more rate cut from the Fed this year and rate rises from the Swiss National Bank and Sweden’s Riksbank before year-end, with the Bank of England seen following suit in 2027.
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