Hormuz games leave the world’s lifeline on edge

Crude oil prices surged on Monday amid uncertainty over when the Strait of Hormuz will reopen, a critical waterway for global oil transport. Iran announced a pact with Oman to create new shipping lanes, but insisted the U.S. must first meet additional conditions. Brent crude futures climbed $1.12, or 1.5%, to $84.7 a barrel, while U.S. West Texas Intermediate crude futures jumped 94 cents, or 1.07%, to $79 a barrel.

These benchmarks had fallen over 7% last week as hopes grew that Iran and Oman were nearing a deal to reopen the strategic Strait of Hormuz, through which a fifth of the world's oil passes.

Iranian Foreign Minister Abbas Araqchi confirmed on Sunday that the deal with Oman was nearing completion, but reiterated that the waterway would reopen only after Washington fulfilled other conditions, including compensating Iran for U.S. attacks. The ongoing conflict has also raised concerns after a Saudi oil facility was hit over the weekend by Iran-aligned Houthis. The attacks have heightened supply worries, as the duration of any disruption could significantly impact oil prices.

Analysts suggest that the length of the supply disruption will be a crucial factor in determining where oil prices head. JPMorgan estimates that each extra month of disruption could add $7 to $8 to Brent prices, with three months potentially pushing Brent to around $114 a barrel. Goldman Sachs warns that Brent could rise to $120 a barrel if shipping disruptions persist through the Strait of Hormuz, the world's most vital oil transit route.

However, Goldman Sachs' base case remains that tensions in the Middle East will eventually ease, in which scenario Brent is expected to average $80 a barrel in the fourth quarter and $75 a barrel next year. The bank cautions that risks remain tilted to the upside due to potential prolonged disruptions in the Strait of Hormuz and the Red Sea.