Oil surges above $100 as Iran orders Strait of Hormuz closed, markets react

Iran closes Strait of Hormuz, oil spikes

Oil prices surged past $100 while stock markets continued to slide after Iran’s new supreme leader ordered the Strait of Hormuz to remain closed.

Concerns over a protracted conflict persisted as US President Donald Trump said defeating Iran’s “evil empire” was more important than energy costs.

Global markets have been unsettled since US and Israeli strikes on Iran, with Tehran’s retaliatory attacks on shipping and Gulf neighbours nearly halting traffic through the Strait of Hormuz, which handles about a fifth of the world’s oil and LNG.

"Oil prices are up by double-digit percentages again today, as the realisation sinks in that the US is not about to either end the war or institute some kind of convoy system in the region," said Chris Beauchamp, analyst at IG trading and investment platform.

Energy Secretary Chris Wright also noted that the US military is currently "not ready" to escort tankers through the strategically critical Strait of Hormuz.

Brent North Sea crude, the international benchmark, reached $101.59 per barrel on Thursday.

At $100 per barrel, Brent is up around 38 percent from the eve of the conflict, which began on February 28 when the United States and Israel launched airstrikes against Iran. It is up nearly two-thirds from the start of the year.

Iran's new supreme leader Mojtaba Khamenei called on Thursday for using "the lever of blocking the Strait of Hormuz", which the country's Revolutionary Guards vowed to carry out.

The call followed fresh attacks against Gulf energy targets: an attack on two oil tankers off Iraq killed at least one crew member, while a cargo ship caught fire after being hit by shrapnel.

Oil prices pared their gains after Iran's deputy foreign minister said that Tehran had allowed ships from some countries to cross the Strait of Hormuz.

The International Energy Agency said the Mideast war "is creating the largest supply disruption in the history of the global oil market", a day after its member countries agreed to unlock 400 million barrels of oil from their reserves -- their largest release ever.

Analyst David Morrison at Trade Nation said that if the announcements of the release of oil from strategic reserves "were supposed to cap prices, then they failed dismally".

The moves may have "suggested some panic as hostilities across the Middle East intensified", he added.

The rise in energy prices could cause prices to rise throughout the economy.

"The longer the oil price remains elevated, the more damaging and long lasting the inflation shock will be for the global economy," noted Kathleen Brooks, research director at trading group XTB.

Wall Street's main stock indices were down more than one percent in early afternoon trading.

Europe's leading equity markets closed lower, as did most Asian markets.

eToro US investment analyst Bret Kenwell said that while US equities had held up rather well to date, a long conflict would have a profound impact on businesses.

"If oil doesn't retreat meaningfully, the pressure won't just be felt at the pump — it will bleed into margins, spending, and potentially quarters of softer growth," he said.

The dollar rose further against major rival currencies.

"The dollar has strengthened, driven by safe-haven demand, fears of inflation, and higher-for-longer interest rate expectations," said Victoria Scholar, head of investment at Interactive Investor.

Key figures at around 1630 GMT 

Brent North Sea Crude: UP 8.6 percent at $99.88 per barrel

West Texas Intermediate: UP 9.3 percent at $95.38 per barrel

New York - Dow: DOWN 1.2 percent at 46,871.01 points

New York - S&P 500: DOWN 1.2 percent at 6,698.16

New York - Nasdaq Composite: DOWN 1.4 percent at 22,389.89

London - FTSE 100: DOWN 0.5 percent at 10,305.15 (close)

Paris - CAC 40: DOWN 0.8 percent at 7,978.98 (close)

Frankfurt - DAX: DOWN 0.2 percent at 23,589.65 (close)

Tokyo - Nikkei 225: DOWN 1.0 percent at 54,452.96 (close)

Hong Kong - Hang Seng Index: DOWN 0.7 percent at 25,716.76 (close)

Shanghai - Composite: DOWN 0.1 percent at 4,129.10 (close)

Euro/dollar: DOWN at $1.1525 from $1.1574 on Wednesday

Pound/dollar: DOWN at $1.3355 from $1.3419

Dollar/yen: UP at 159.20 yen from 158.92 yen

Euro/pound: UP at 86.31 pence from 86.25 pence

(With inputs from AFP)