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JPMorgan Chase has warned that Brent crude oil prices could spike to $120 per barrel if a full-scale conflict in the Middle East leads to a sustained disruption of oil flows through the Strait of Hormuz, estimating that Gulf producers can only sustain normal production for roughly 25 days if the Strait is completely blocked, after which saturated storage would force a total shutdown of regional production.
Oil prices were surging on Monday, with Brent crude for April delivery up 8.7% to trade at $79.28 per barrel at 9.00 am ET while the corresponding WTI contract gained 7.8% to $72.16 after U.S. and Israeli military killed Iran’s Supreme Leader Ayatollah Ali Khamenei on Saturday.
The Iranian leader met his fate during “Operation Epic Fury” by the United States and Israel that utilized B-2 stealth bombers and high-precision missiles to target Iran’s missile infrastructure, command centers and senior leadership.
Nearly 50 senior Iranian leaders were reportedly killed in the strikes. Iran has launched a barrage of missiles and drones targeting Israel and U.S. bases in the Persian Gulf, including sites in Bahrain and the UAE. Strikes on Israel have killed at least 11 people while three American service members were killed and five wounded in the initial counter-offensive.
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Whereas the Strait of Hormuz has not officially been closed, it is experiencing a de facto closure due to a sharp 70% drop in traffic caused by safety fears, insurance cancellations and suspension of operations by major shipping lines.
An estimated 200 tankers carrying crude and LNG have dropped anchor or diverted to avoid the strait while major shipping firms like Hapag-Lloyd and CMA CGM have suspended all transits through the waterway. War risk insurance premiums have surged by up to 50%, making transit economically unviable for most operators.
The Strait of Hormuz daily is one of the major global maritime chokepoints, with the route handling 20 to 21 million barrels of crude oil, condensate and petroleum products representing about 20% of global daily consumption and nearly 30% of global seaborne oil trade.
By Alex Kimani for Oilprice.com
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