Oil Rises as Hormuz Talks Stall, Threatening 20% of Supply

Crude futures climbed Monday as the 60-day deadline for a U.S.-Iran peace deal expired with no progress on reopening the Strait of Hormuz, keeping roughly 20 percent of global oil flows blocked.

"It's clear to me if this crisis lasts more than three or four months it becomes a systemic problem for the world," Patrick Pouyanne, chief executive officer of TotalEnergies SE, said at the CERAWeek conference in Houston. "We cannot have 20% of the crude oil, which is exported globally, stranded in the Gulf and 20% of the LNG capacity stranded, without any consequence."

Brent crude traded near $116 a barrel, up about 60 percent since the U.S.-Israeli war against Iran began Feb. 28. The closure of the strait is reducing global oil flows by roughly 11 million barrels a day, leaving a shortfall of about 9 million barrels versus pre-war demand — more than the combined consumption of the UK, France, Germany, Spain and Italy. Iran has been allowing a trickle of foreign ships through the waterway, but volumes remain a small fraction of pre-war levels.

The June memorandum of understanding called for the strait to be reopened within 60 days, but Tehran has since demanded the lifting of the U.S. naval blockade, withdrawal of American forces from around Iran and war reparations — while insisting it will control the waterway and potentially charge transit fees through a separate agreement with Oman. If the strait remains closed, analysts warn oil could surge toward $200 a barrel, a stagflationary shock that would hit global growth and complicate central bank policy.

Talks Stall as Both Sides Dig In

The 60-day deadline set by President Donald Trump in June expired Monday with both sides further from agreement than when talks began. Trump has rejected Iran's demands, saying it is Tehran that should pay war reparations and claiming the U.S. controls the strait. Iran's Revolutionary Guard has dismissed Trump's assertion of backchannel talks, while the president threatened to bomb Oman if it "gets in the way" of a U.S. deal with Tehran.

Iranian and Omani officials have been negotiating for weeks on future maritime navigation arrangements, with Tehran saying "an understanding has been reached regarding the map of the transit route." The proposed deal would reopen the strait with ships entering through a route close to Iran and exiting through a route close to Oman, without tolls during an interim period.

Supply Shock Spreads West

The impact is already visible beyond crude. U.S. consumer prices rose 3.4 percent year on year in March, up from 2.4 percent in February, with fuel costs the main driver. European natural gas prices are up more than 70 percent since the conflict began, and diesel shortages are expected in the region within weeks if the strait stays closed.

The last comparable disruption was the 1973 Arab oil embargo, which triggered stagflation and a sweeping overhaul of the global energy system. "If you think about the magnitude of the shock coming out of the Gulf right now, you could lose between 5-10 million barrels a day of demand, which will have a significant impact similar to the seventies," said Jeff Currie, chief strategy officer of energy pathways at Carlyle Group Inc.

Saudi Arabia and the United Arab Emirates have rerouted some crude through pipelines that bypass the strait, and a record release of strategic stockpiles has cushioned the blow. But those buffers are finite. "The playbook is pretty bare at this point," said Mike Sommers, chief executive of the American Petroleum Institute.

This article is for informational purposes only and does not constitute investment advice.