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Iran war shakes oil market as Dangote hikes prices
Sopuruchi Onwuka
Global commodity marks entered panic mode on Monday when parties to the ongoing Iran war took hard lines as Iran launched attacks on merchant vessels passing through the Strait of Hormuz.
The threat to global merchant ships and closure of Strait of Hormuz mean that oil and gas output from key producers in the Middle East has been shut in, compounding the prevailing impasse in the flow of supplies through the Persian Gulf.
In Nigeria, local Dangote Refinery cashed in on the sharp rise in crude oil prices associated with supply concerns to hike petrol prices by about N100 per liter to N940 per liter.
Dangote Refinery adjusts local prices in line with international price movement even when it secures feedstock locally and in local currency.
With the war in Iran expected to escalate across the Middle East in coming weeks, fears are high that prices of crude oil will continue to rise and influence jumps in local fuel prices.
Following price deregulation and commercial liberalization of the domestic fuel market, players have maintained a gaze on international price boards for pricing intelligence. And fluctuations in crude oil prices directly translate the domestic fuel prices.
Crude oil breached the $80 per barrel mark on Wednesday after Iran deliberately attacked it Arabian neighbors in deliberate escalation of the war with the United States and Israel.
Analysts say the Iranian strategy is to ignite anti-US sentiments in the region and project the American military bases in the areas as liabilities to their host countries.
Iran has also called for doomsday war with the United States following the killing of its supreme leader, Ayatollah Ali Khamenei.
Also, the rising fuel prices come at a period of falling exchange rate to the dollar, indicating cheaper crude oil prices for local refiners that buy in Naira.
While many continue to wonder why the much awaited and highly applauded Dangote Refinery has only resulted in fuel price hikes, analyst point at deregulation and liberalization of the market as opportunity for dominant market suppliers to rule price movements.
Spreading the impact
The escalating Iran war has also sent shockwaves through global energy markets, pushing up oil and gas prices and triggering queues at petrol stations.
Threats to supply are strong triggers to the prices of crude oil and natural gas, the two commodities that fuel human activities around the world. And the Strait of Hormuz links the Persian Gulf to the open ocean and handles roughly 20 percent of global liquefied natural gas trade, along with a significant share of internationally traded oil.
Brigadier General Jabbari, an adviser to the Islamic Revolutionary Guard Corps, declared on state television that the strait was effectively closed. He warned that any ship attempting to pass would be attacked and said oil pipelines would also be targeted, predicting prices could climb to $200 a barrel in the coming days.
Consequent upon the threats from Iran, global shipping traffic flowing through the strait sharply slowed, with some companies suspending sailings over security concerns.
With most LNG shipments passing through the critical energy chokepoint, the Iranian threat poses a major supply concern, forcing key importing regions like Europe and Asia into hasty scramble for alternative supplies at higher rates. Britain’s benchmark NBP gas price jumped by more than 50 percent, with similar increases across Europe. Brent crude rose roughly 9 percent to about $81 a barrel, with further gains reported as tensions escalate.
Analysts warn that if the strait were closed for several weeks, European gas prices could return to levels seen after the Russian invasion of Ukraine.
In well-regulated markets as in Britain, it takes prolonged increases in wholesale costs for prices to feed through to household bills. But in Nigeria, the cost transfer is always immediate even if jumps in crude oil price was a mere flash.
Analysts believe that markets are currently reacting not just to actual supply disruption but to the risk that it could worsen. If shipping through the Strait of Hormuz resumes quickly, prices may ease. If tensions escalate and flows remain blocked, energy costs could rise and add further pressure to household budgets and inflation.
In Europe, the sharp rise in crude oil and natural gas prices are yet to hit retail outlets; but in Nigeria, the transfer was immediate despite the cost absorption measures including domestic crude obligation and crude for Naira policy provided by government to cushion price bumps in the domestic fuel market.
