After Iran, hit by U.S.-Israeli airstrikes, effectively sealed off the Strait of Hormuz, a key chokepoint for crude shipments, international oil prices rose by more than 4% on the 3rd (local time). Most expect prices to fluctuate in the $70~80 range for a while and then stabilize as the situation calms, but there remains a possibility they could surge above $100 if the war drags on.

On the day, Brent crude futures on the ICE Futures Exchange settled at $81.4 per barrel, up $3.66 (4.71%) from the previous session. On the New York Mercantile Exchange, West Texas Intermediate (WTI) finished at $74.56 per barrel, up $3.33 (4.67%).

Since the United States and Israel began airstrikes against Iran on the 28th of last month, Brent and WTI have risen 13.2% and 12.6%, respectively. The gains reflect Iran effectively shutting down the Strait of Hormuz, a major artery for global energy flows. Saudi Arabia and the United Arab Emirates operate pipelines that bypass the strait, but they cannot fully substitute for the Hormuz route.

Iraq, the second-largest producer in the Organization of the Petroleum Exporting Countries (OPEC), also said on the day that it would halt crude production at its Rumaila field, pushing prices higher. The move reflects difficulty securing tankers due to the suspension of traffic through the Strait of Hormuz. U.S. investment bank JPMorgan Chase analyzed, “If paralysis at the Strait of Hormuz persists for several weeks, storage saturation will make production cuts by Persian Gulf oil producers unavoidable.”

To calm fears of high oil prices, U.S. President Donald Trump stated, “If necessary, the U.S. Navy will begin escorting tankers through the Strait of Hormuz as quickly as possible.” Following the remark, oil prices, which had at one point spiked more than 9% intraday, pared gains.

The key question is how far prices will rise. Experts judge that international prices, now around $80, reflect a $10~15 ‘risk premium’. Goldman Sachs analyzed, “Oil traders are demanding about $14 per barrel more than before the conflict; this is compensation for increased risk,” adding, “And this pricing assumes a complete halt to crude shipments through the Strait of Hormuz for four weeks.”

Still, the prevailing view in the market is that war-related uncertainty will be resolved before long and that this risk premium will shrink quickly. Hong Seong-gi, an analyst at LS Securities, said, “In the base scenario, prices will fluctuate around $70~75 per barrel and then settle lower,” adding, “Given President Trump said the U.S. operation would last 4~5 weeks, the surge is likely to stabilize within two weeks.”

The likelihood is low, but prices could top $100. Hong added, “If a blockade of the Strait of Hormuz is prolonged, prices could spike to as high as $150 per barrel,” and “the market currently prices this probability at around 10%.”

Hwang Seong-hyeon, an analyst at Eugene Investment & Securities, also stated, “For each day of a (Hormuz) blockade, oil prices would increase by about $4,” adding, “If the war becomes prolonged, it is necessary to leave open the possibility that international prices could reach as high as $120.”