Oil prices rise after Iran seizes British-flagged tanker

Oil prices rallied as market trading resumed globally yesterday following the seizure of a British-flagged tanker by Iran on Friday, increasing tensions in the Middle East.

Brent gained 2.3 per cent and was trading at $63.92 per barrel at 12:26pm UAE time as the markets recovered from a steep decline over the previous week to react to the latest seizure of a tanker transiting the Strait of Hormuz.

“Geopolitical concerns have pushed the markets higher after weeks of worries regarding slowing global growth,” said Mihir Kapadia, the chief executive of Sun Global Investments. “With US energy firms also reducing the number of oil rigs under operation following plans to cut spending amid a global supply glut, markets also found an additional layer support for the short term.”

Iran’s Revolutionary Guard Corps, an elite military force aligned with the country’s Supreme Leader Ayatollah Khamenei, captured the British-flagged Stena Impero as it was on its way to the eastern Saudi industrial port city of Jubail. Iran later released video and audio footage of the Swedish-owned tanker, which was accused of colliding with a local fishing boat as it transited the Gulf of Oman.

The seizure follows the capture about two weeks earlier of the Panamanian-flagged Grace

by the UK’s Royal Marines off the coast of Gibraltar. Britain said the vessel had flouted EU norms by carrying Iranian crude bound for Syria. Tehran denounced the capture as an “act of piracy” and warned it would repay in kind.

While British vessels transiting the Gulf such as the British Heritage had their passages along the Strait “impeded” by Iranian vessels, Friday’s incident was the first outright capture of a vessel by Tehran.

Another British-linked tanker, Mesdar, flying a Liberian flag, was also stopped by Iranian guards as it transited the strait, through which a third of the world’s seaborne oil passes.

MT Riah, sailing under a Panamanian flag, had left from Sharjah in the UAE only to be captured by the IRGC off Iran’s Larak Island on the suspicion of abetting fuel-smuggling in the Gulf.

Oil markets had earlier remained immune to attacks on tankers as an influx of US crude and lukewarm demand from Asia, notably China, failed to move the needle on prices.

However, rising tension in the Gulf, particularly the seizure of the British flagged tanker and the downing of an Iranian drone by a US assault ship last week, has rallied commodity prices.

The cost of transiting the Strait of Hormuz has pushed shipping insurance on merchant vessels to their highest levels so far this year.

Investment banks such as Bank of America Merrill Lynch maintained its assumption for Brent to trade between $60 and $67 per barrel in the absence of escalating tension in the Middle East and a US-China trade war.

However, other analysts such as Ken Medlock, a senior director at Rice University’s Centre for Energy Studies in Houston, expects Brent to increase to as much as $100 per barrel, with even the oversupply from US shale unlikely to absorb the rising geopolitical risk premium in the Middle East.

The US Federal Reserve will meet on July 30-31 and is expected to cut interest rates this month which may put downward pressure on the dollar. “A weakened dollar may also provide some tailwind to oil markets,” said Mr Kapadia.

Geopolitical concerns have pushed the markets higher after weeks of worries over slowing global growth MIHIR KAPADIA Sun Global Investments CEO