Iran’s move to stop negotiations with the U.S. sent oil climbing after weeks of falling prices amid negotiations between the U.S. and Iran.
The U.S./Iran conflict took another twist Monday when Tehran said that it is stopping negotiations with Washington and vowed to block the Strait of Hormuz, providing a jolt to oil prices. Any advisors and their clients hoping for an imminent peace deal that would stabilize energy markets have apparently been dashed.
In a translated post on the social media channel Telegram, Iran’s Tasnim news agency said that the country’s negotiating team is suspending “dialogues and exchange of texts,” with the U.S. Tasnim cited Israel’s ongoing military operations in Lebanon, which have targeted the Iran-backed Hezbollah militia.
There will not be talks until Israel ends its operations in Gaza and Lebanon, the post said, noting that Iran has also set its agenda to “completely block” the Strait of Hormuz.
Iran’s move pushed oil prices upward, with Brent crude futures climbing more than 4% to over $95 a barrel. However, prices are still well below their wartime high, which briefly surpassed $126 a barrel.
The Strait of Hormuz is a vital conduit for global oil supplies and about 20% of the world’s oil, or 20 million barrels per day, passes through the Strait.
Underlining the scale of this issue, the latest research from BlackRock cites energy security as a top threat amid the fallout from the conflict between the U.S. and Iran.
The White House referred InvestmentNews to President Donald Trump's post on his Truth Social network Monday afternoon that appeared to contradict the Iranian report. "Talks are continuing, at a rapid pace, with the Islamic Republic of Iran," he wrote.
The U.S. military’s Central Command have not yet responded to a request for comment from InvestmentNews.
Paul Christopher, head of Global Investment Strategy at the Wells Fargo Investment Institute notes that last week’s announcements of a serious negotiation that was closing in on a deal pushed oil prices lower. However, traffic levels in the Strait of Hormuz have also been firmly in the spotlight.
The New York Times, citing officials, reports that the U.S. Central Command has guided around 70 commercial ships through the Strait of Hormuz in the last three weeks.
“That’s good but the average is only around three ships per day," Christopher wrote, in a note released early Monday. "For perspective, the pre-war daily average is 100 ships."
The problem is in the arithmetic, according to Christopher. “The world has lost over a billion barrels of oil since the war began,” he said. “The U.S. and other countries have been pulling from strategic reserves, subsidizing household energy expenses, and imposing rules to limit energy use (like work from home requirements).”
The Wells Fargo Investment Institute head of global investment strategy also pointed to recent comments by Dr. Fatih Birol, executive director of the International Energy Agency that the world entered U.S./Iran conflict a lot of surplus oil in the markets. “This helped a lot to absorb the shock,” Birol said during a recent event hosted by the London think tank Chatham House, adding that the IEA released a huge amount of oil stocks into the markets in March. He also pointed to individual oil stocks held by countries and companies. “But all of them put together is not a solution to the problem,” he said. “The single most important solution to the problem is fully and unconditional opening of [the] Strait of Hormuz.”
Birol explained that the travel season starts in late June and early July, increasing oil demand. “We may be entering the red zone in July or August if we don’t see that there are some improvements in the situation,” he added.
However, Wells Fargo Investment Institute’s Christopher notes that there are already measures in place to help with U.S. gas price increases. “In the US, GA, IN, KY short-term are allowing gas-tax holidays, latest is UT into year-end,” he wrote. “There is no federal policy yet, but Washington could suspend an 18 cents/gallon federal gas tax.”
“At some point, we could see the U.S. government move to limit crude oil and refined product exports, which would definitely hurt our allies, which have sent a tanker armada of record size to fill up with U.S. crude oil and products,” Christopher added.
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