Today, Oil prices surged upward by over 4% pushed by the increased concerns over the Iranian threats to close to Strait of Hormuz. This narrow strip of water is a major shipping route for oil tankers. Closing of this waterway would not stop the flow of oil but would cause shipped to have to reroute tankers, using slower, longer shipping routes. This rerouting, is costly, and would also cause shortages in the supply of oil, until the shipping cycles could catch up.
Oil prices jumped 4.2% to close at $102.96 a barrel. This is the highest settlement price since May 10, when prices ended the day at $103.88 a barrel.
The oil producing nations of the Middle East, have assured the global markets that they would be able to make up any shortages if necessary. It is the time needed to handle the logistics and the lengthen route to ports that have the markets worried.
At the same time, the increased price of oil, during these delicate economic times could hamper growth and manufacturing.
This conflict, can also lead to higher tensions and possible military action.
Today, the Iranian Military challenged the US and have threatened to attach our naval vessels in the gulf or the straits.
Iran said it would take action if a U.S. aircraft carrier which left the area because of Iranian naval exercises returns to the Gulf. The state news agency IRNA quoted army chief Ataollah Salehi as saying that “Iran will not repeat its warning … the enemy’s carrier has been moved to the Sea of Oman because of our drill. I recommend and emphasize to the American carrier not to return to the Persian Gulf.”
The United States will continue to deploy its warships in the Gulf, a defense spokesman said on Tuesday after Iran threatened to take action if the U.S. Navy moves an aircraft carrier into the Gulf.
“These are regularly scheduled movements and in accordance with our long-standing commitments to the security and stability of the region and in support of ongoing operations,” Commander Bill Speaks said in an emailed response to Reuters questions.
“The U.S. Navy operates under international maritime conventions to maintain a constant state of high vigilance in order to ensure the continued, safe flow of maritime traffic in waterways critical to global commerce,” he said.
Speaking about Iranian threats, State Department spokeswoman Victoria Nuland said the U.S. saw “these threats from Tehran as just increasing evidence that the international pressure is beginning to bite. They are feeling increasingly isolated and they are trying to divert the attention of their own public from the difficulties inside Iran, including the economic difficulties as a result of sanctions.”