Crude oil prices advanced by about 3 percent on Monday as escalating military exchanges between the United States and Iran intensified concerns over supplies passing through the Strait of Hormuz.
Brent crude oil, against which Nigerian crude oil is priced, rose to $90.87 per barrel, its highest level since June 11, while U.S. West Texas Intermediate crude climbed to $84.84 per barrel.
The latest increase extended last week’s sharp rally, when Brent gained 15.9 percent and WTI advanced 15.5 percent.
The gains reflected a rapidly expanding geopolitical risk premium as traders reassessed the possibility of a prolonged disruption to Middle Eastern energy exports.
The United States conducted another round of attacks against Iran, marking its ninth consecutive night of military operations. Iran responded with further attacks and renewed threats against commercial vessels operating around the Strait of Hormuz.
Two oil tankers were reportedly damaged and immobilised following explosions in the strategic waterway, while a separate vessel was reported to be on fire near Oman.
The developments have increased uncertainty among shipping companies, traders and energy consumers already contending with reduced tanker activity in the region.
Approximately one-fifth of global oil trade passes through the Strait of Hormuz, making it one of the most important shipping routes in the international energy market.
Any extended restriction affecting the passage could delay supplies from major producers, including Saudi Arabia, Iraq, Kuwait, Qatar and the United Arab Emirates.
Reduced Tanker Traffic Raises Supply Concerns
The oil market is increasingly responding to actual shipping constraints rather than treating the conflict solely as a temporary geopolitical risk.
Tanker movements through the strait have declined as operators reconsider routes, insurance costs rise and crews face growing security threats.
Barclays analysts warned that the market could be underestimating the effect of simultaneous restrictions imposed by the United States and Iran, particularly when global petroleum inventories are already near their lowest levels in five years.
A prolonged disruption could push crude prices higher, increase transportation expenses and tighten the availability of refined petroleum products.
Higher oil prices may also complicate the outlook for central banks by raising inflationary pressure at a time when several major economies are considering changes to interest rates.
Energy-importing countries would face larger import bills, weaker currencies and higher domestic fuel costs if Brent remains above $90 per barrel.
For oil-producing countries such as Nigeria, the rally could improve export earnings and government revenue. However, the benefit may be reduced by production limitations and the higher cost of imported refined products and industrial inputs.
The direction of prices will now depend largely on developments in the Strait of Hormuz, the extent of damage to commercial vessels and whether diplomatic efforts can prevent a broader interruption to regional exports.
With military operations continuing and tanker traffic declining, traders are likely to retain a substantial risk premium in crude prices until the security of the waterway improves.
