Oil Surges After Trump Speech, Iran Escalation Fears Grow
Oil prices rose sharply on Thursday (April 2nd) after US President Donald Trump warned of a potential escalation in military action against Iran in the next two to three weeks. The statement dimmed market hopes for an imminent de-escalation, widening the supply risk premium again.
WTI futures for May delivery rose 13% to US$113.08 per barrel at 9:16 a.m. ET. Meanwhile, Brent for June delivery rose 8% to US$109.29 per barrel. In his speech, Trump attributed the rise in oil prices to accusations that the Iranian regime has carried out attacks on commercial oil tankers and neighboring countries not involved in the conflict.
Trump stated that the US would hit Iran “very hard” in the next two to three weeks, but added that war would not last long and that talks with Tehran were “still ongoing,” suggesting that the path to diplomacy remains open. However, the market viewed this message as insufficiently definitive, especially with disruptions to key energy routes still occurring.
The Strait of Hormuz—which previously carried about a fifth of global oil and gas flows—has reportedly been virtually shut down since the US-Israel war against Iran began on February 28, sending energy prices soaring in one of the most severe energy crises. Oxford Analytica political risk analyst Giles Alston believes tanker traffic through Hormuz is unlikely to recover anytime soon.
Causes
Trump's speech increased the perceived risk of military escalation within 2–3 weeks, reducing expectations of a rapid de-escalation.
The disruption of the Strait of Hormuz led the market to assess that global energy supplies remain tight.
The narrative of threats to tanker shipping and infrastructure strengthened the geopolitical risk premium on oil prices.
Results
Oil prices surged (WTI +13% to US$113.08; Brent +8% to US$109.29) as the market factored in the risk of prolonged supply cuts.
The risk of energy inflation increased, which could pressure risk assets and tighten interest rate policy expectations.
Energy market volatility is likely to remain high as long as the status of Hormuz and the direction of military operations remain unclear.
Source: Newsmaker.id
