Oil prices may not stay elevated even with Mideast tensions
PETALING JAYA: While a ceasefire has been agreed between Iran and Israel, analysts have already contemplated how a potential closure of the Strait of Hormuz by Iran would affect oil supply and crude oil prices.
The Strait handles about 20% of the world's oil transit and around 25% to 30% of global liquefied natural gas (LNG) exports.
Countries like Saudi Arabia, the United Arab Emirates, Iran, Kuwait, Iraq and Qatar rely heavily on the strait to export oil and gas, which are crucial to their national budgets.
Maybank Investment Bank Research (Maybank IB Research) said in a note, should the strait be actually closed, there could disruptions in the supply of oil that put pressure on its forecast of Brent crude oil at US$67 per barrel for this year and its 'neutral' rating for the oil and gas sector.
Its top picks in the sector are Dialog Group Bhd and Bumi Armada Bhd .
'Crude prices could rise in the short term, depending on how long the closure lasts. During previous periods of tension, oil prices did not stay elevated for long, as there were no supply disruptions.
'Iran itself exports oil via the Strait of Hormuz. Closing the Strait would potentially hurt its own economy, isolate it diplomatically and may invite retaliation.
'Based on our findings, we understand that the strait has never been completely closed to shipping, although it has been threatened many times historically during the Iran-Iraq Tanker War in the 1980s, the European Union (EU) and US imposed sanctions on Iran in 2011, and when the US withdrew from the Iran nuclear deal and imposed sanctions in 2018 to 2019.
'Despite tensions in the past, the strait remained open,' the research house said.
On June 22 Iran's Parliament approved a resolution that would allow for the closing of the Strait of Hormuz. However, this is only the first step. The final decision lies with the Supreme National Security Council, Iran's top security body.
Maybank IB Research said that, without the authorisation, Parliament's approval alone is not enough.
'So far, we understand that no formal order has been issued by the Council, but we believe that the closure of strait remains a possible option, albeit remote,' it noted.
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