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Iran's top security body must make the final decision on whether to close the Strait of Hormuz, Iranian TV said on Sunday, after parliament reportedly backed the measure in response to U.S. strikes on several of Tehran's nuclear sites.

Iran has in the past threatened to close the strait but has never followed through on the move, which would restrict trade and impact global oil prices.

Below are details about the strait:

WHAT IS THE STRAIT OF HORMUZ?

The strait lies between Oman and Iran and links the Gulf north of it with the Gulf of Oman to the south and the Arabian Sea beyond.

It is 21 miles (33 km) wide at its narrowest point, with the shipping lane just 2 miles (3 km) wide in either direction.

WHY DOES IT MATTER?

About a fifth of the world's total oil consumption passes through the strait. Between the start of 2022 and last month, somewhere between 17.8 million and 20.8 million barrels of crude, condensate and fuels flowed through the strait daily, data from analytics firm Vortexa showed.

OPEC members Saudi Arabia, Iran, the United Arab Emirates, Kuwait and Iraq export most of their crude via the strait, mainly to Asia. The UAE and Saudi Arabia have sought to find other routes to bypass the strait.

About 2.6 million barrels per day (bpd) of unused capacity from existing UAE and Saudi pipelines could be available to bypass Hormuz, the U.S. Energy Information Administration said in June last year.

Qatar, among the world's biggest liquefied natural gas exporters, sends almost all of its LNG through the strait.

The U.S. Fifth Fleet, based in Bahrain, is tasked with protecting commercial shipping in the area.

HISTORY OF TENSIONS

In 1973, Arab producers led by Saudi Arabia slapped an oil embargo on Western supporters of Israel in its war with Egypt.

While Western countries were the main buyers of crude produced by the Arab countries at the time, nowadays Asia is the main buyer of OPEC's crude.

The U.S. more than doubled its oil liquids production in the last two decades and has turned from the world's biggest oil importer into one of the top exporters.

During the 1980-1988 Iran-Iraq War, the two sides sought to disrupt each other's exports in what was called the Tanker War.

In July 1988, a U.S. warship shot down an Iranian airliner, killing all 290 aboard, in what Washington said was an accident and Tehran said was a deliberate attack.

In January 2012, Iran threatened to block the strait in retaliation for U.S. and European sanctions. In May 2019, four vessels - including two Saudi oil tankers - were attacked off the UAE coast, outside the Strait of Hormuz.

Three vessels, two in 2023 and one in 2024, were seized by Iran near or in the Strait of Hormuz. Some of the seizures followed U.S. seizures of tankers related to Iran.

Source: Reuters

Five months into the biggest trade war the global economy has seen in the postwar era, the bottom has hardly fallen out of major economies.

The latest US retail sales figures were down, though not across the board. China’s surprised on the upside. In Germany, optimism abounds over the turn to fiscal stimulus. Even US inflation figures for months now have beaten back expectations for higher import duties to feed through to generalized increases in prices — likely thanks in part to fat margins.

CIBC senior economist Ali Jaffery mused on the resilience of the US in particular in the middle of last week, saying “maybe the big lesson of all this is that the US economy has become so well internally diversified that its very robust to multiple shocks.”

“The period of painful post-financial crisis household deleveraging, low inflation and low interest rates allowed the right rebalancing of capital and labor, and the post-pandemic fiscal policy, while excessive in adding some extra inflation, kept that process intact,” Jaffery wrote. “Perhaps I will have to eat those words in the coming months as we might be in the eye of the storm.”

If the US was indeed in the eye of the storm as of last week, President Donald Trump’s decision to attack Iran over its nuclear program at the weekend threatens to push it toward the fury of the gale.

Any significant increases in oil or natural gas prices, or disturbances in trade caused by a further escalation of the conflict, would act as yet another brake on the US, and global, economy.

“We’ll see how Tehran responds, but the attack likely puts the conflict on a escalatory path,” Bloomberg Economics analysts including Ziad Daoud wrote in a report. “For the global economy, an expanding conflict adds to the risk of higher oil prices and an upward impulse to inflation.‎”

In an interview with Bloomberg Television on Monday, IMF Managing Director Kristalina Georgieva warned that the US strikes on Iran could potentially have broader impacts beyond energy channels, as global uncertainty escalates.

“When there is uncertainty, what happens? Investors don’t invest, consumers don’t consume, and that holds growth prospects down,” she said.

US inflation probably inched higher in May, offering scant evidence of extensive tariff-related repercussions that the Fed expects to become more apparent later in the year.

Ahead of the key figures on Friday and fresh off the Fed’s decision last week to keep interest rates unchanged, Jerome Powell heads to Capitol Hill for two days of testimony in which he’ll lay out the case, again, for the central bank’s go-slow policy approach. The Fed chair is likely to emphasize that while rate cuts are possible this year, officials want more clarity on the economic impact of White House trade policy.

Economists see the personal consumption expenditures price index excluding food and energy — the Fed’s preferred gauge of underlying inflation — rising 0.1% in May for a third month. That would mark the tamest three-month stretch since the pandemic five years ago.

Elsewhere, multiple inflation releases in Asia, appearances by the euro-zone and UK central bank chiefs, and a prospective rate cut in Mexico may be among the highlights.

The end of the era of ultra-low rates in the US and other developed nations has magnified the danger of running large fiscal deficits — because of the resulting surge in debt-servicing costs. But the real threat to the bond market isn’t so much from a fiscal doom loop, according to Dario Perkins at TS Lombard.

“As always, much of the commentary in financial markets is about ‘fiscal risk’ and low term premia,” Perkins wrote in a note last week. (The so-called term premium is the extra yield investors are imputed to demand for buying longer-term debt versus rolling over short-term securities.) “But the real threat to bond markets is deeper than that,” he wrote.

“It is about the basic hedging properties of government securities in a world that seems more susceptible to supply shocks and in which US policymakers are behaving more recklessly,” Perkins wrote. “If bonds are becoming less valuable as a portfolio hedge, they will be less attractive to investors – regardless of the size of the budget deficit or the balance sheet policies of central banks.”

Source: Bloomberg Europe

Oil prices rose on Monday in a volatile session following the United States' weekend move to join Israel in attacking Iran's nuclear facilities, as investors weigh the potential risks to oil supply disruptions as a result of the escalating conflict.

Brent crude futures were up 78 cents, or 1.01%, to $77.79 a barrel as of 1000 GMT. U.S. West Texas Intermediate crude rose by 76 cents, or 1.03%, to $74.60.

U.S. President Donald Trump said he had "obliterated" Iran's main nuclear sites in strikes over the weekend, joining an Israeli assault in an escalation of conflict in the Middle East as Tehran vowed to defend itself.

Israel carried out fresh strikes on Iran on Monday including on capital Tehran, and Iran's nuclear facility of Fordow which was also a target of the U.S. attack.

Iran is OPEC's third-largest crude producer.

Iran said on Monday that the U.S. attack on its nuclear sites expanded the range of legitimate targets for its armed forces and called U.S. President Donald Trump a "gambler" for joining Israel's military campaign against the Islamic Republic.

China meanwhile said the U.S. attack had damaged Washington's credibility and warned that the situation "may go out of control."

Price were volatile in Monday's session. Both contracts touched fresh five-month highs earlier in the session of $81.40 and $78.40 respectively, before giving up their gains to turn negative during the European morning session and then recovering to a 1% gain.

A pumpjack operates at the Vermilion Energy site in Trigueres, France, June 14, 2024. REUTERS/Benoit Tessier/File Photo Purchase Licensing Rights, opens new tab

Prices have risen since the start of the conflict on June 13 amid mounting fears that an Iranian retaliation may include a closure of the Strait of Hormuz, through which roughly a fifth of global crude supply flows.

However, investors are weighing up the extent of the geopolitical risk premium in oil markets given the Middle Eastern crisis is yet to impact on supply.

"The geopolitical risk premium is fading, as so far there has been no supply disruptions. But as it's unclear how the conflict might evolve, market participants are likely to maintain a risk premium for now. So prices are set to stay volatile in the near term," UBS analyst Giovanni Staunovo said.

The geopolitical risk premium includes fears that an Iranian retaliation may include a closure of the Strait of Hormuz, through which roughly a fifth of global crude supply flows.

"All eyes remain on the Strait of Hormuz ... and whether Iran will seek to disrupt tanker traffic," Saxo Bank analyst Ole Hansen said.

Prices could spike in the short term even without full-scale disruption, if the threat of interference alone is enough to delay shipments through the Strait, Hansen added.

Goldman Sachs said in a Sunday report that Brent could briefly peak at $110 per barrel if oil flows through the critical waterway were halved for a month, and remain down by 10% for the following 11 months.

The bank still assumed no significant disruption to oil and natural gas supply, citing global incentives to try to prevent a sustained and very large disruption.

Given the Strait of Hormuz is indispensable for Iran's own oil exports, which are a vital source of its national revenues, a sustained closure would inflict severe economic damage on Iran itself, making it a double-edged sword, said Sugandha Sachdeva, from research firm SS WealthStreet.

Source: Reuters

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Source: Reuters

Iran said today that US airstrikes on its nuclear facilities have expanded the range of legitimate military targets for its armed forces, intensifying concerns over supply disruptions in a region that underpins global oil trade.

Powerful and targeted operations with "serious consequences" await the US in response to its direct involvement in strikes on Iranian soil, according to Ebrahim Zolfaqari, spokesperson for Iran's Khatam al-Anbiya central military headquarters. "Mr. Trump, the gambler, you may start this war, but we will be the ones to end it," Zolfaqari said.

The US strikes on three heavily fortified nuclear facilities in Iran early on 22 June local time marked a clear shift, with Washington now openly joining Israel's military campaign against Tehran's nuclear programme, which Israel views as an existential threat. Israel and Iran have been trading airstrikes and missiles since 13 June.

The US has thousands of troops stationed across the Middle East, including in Bahrain, Qatar, the UAE, Kuwait, Saudi Arabia and Iraq. While Iran has threatened retaliation, it has so far held back from steps often floated by its leadership, such as striking US bases in the region or closing the strait of Hormuz — a vital waterway through which about a quarter of global seaborne oil trade flows.

The US bombing and Iran's threats of retaliation caused crude futures top rise sharply in early trading on 23 June, with front-month Ice Brent climbing above $80/bl for the first time in five months, as the US bombing raised fears of wider escalation. But markets later pared gains. The August Ice Brent contract was trading at $76.56/bl as of 08:25 GMT, down by 45¢/bl from its 20 June settlement.

Trump warned Iran against retaliating for the strikes and signalled he is open to regime change in Tehran. "If the current Iranian Regime is unable to MAKE IRAN GREAT AGAIN, why wouldn't there be a Regime change??? MIGA!!!" he said on Sunday, as Tehran continued to show defiance. He followed up by claiming the strikes had caused "monumental" damage to Iran's nuclear sites, adding that the "biggest damage took place far below ground level. Bullseye!!!"

The full extent of the damage remains unverified. But "even if nuclear sites are destroyed, game isn't over, enriched materials, indigenous knowledge, political will remain", said top Iranian military and nuclear adviser, Ali Shamkhani.

The UN's nuclear watchdog, the IAEA, said on 22 June that no increases in off-site radiation levels had been reported following the US strikes. Director general Rafael Grossi, in an address to the UN Security Council, confirmed that Fordow — Iran's main facility for enriching uranium to 60pc — was hit. He also said the Esfahan nuclear site and the Natanz enrichment facility were struck again.

Source: Argus Media