International oil prices plummeted by over 7% on Monday.
The price collapse was triggered by Iran’s airstrikes on U.S. military bases in Qatar and Iraq, which were pre-notified and resulted in no casualties.
The market interpreted Iran’s actions as a calculated move to save face while signaling its reluctance to escalate the conflict by avoiding casualties.
Brent crude, the global oil benchmark, fell 5.73 USD (7.44%) to 71.28 USD per barrel for August delivery.
West Texas Intermediate (WTI), the U.S. benchmark, also dropped 5.33 USD (7.22%), closing at 68.51 USD per barrel for August delivery.
Oil prices had surged the previous night.
Brent crude jumped over 5%, breaking 81 USD per barrel, while WTI hit its highest level since January.
The oil market was rattled after the U.S. struck Iranian nuclear facilities, prompting Iran’s parliament to vote on June 22 to block the Strait of Hormuz.
The Strait of Hormuz is a critical chokepoint, handling 20% of global oil consumption and 25% of maritime oil shipments.
At its narrowest point, where supertankers pass, the strait is only about 2 miles (3.2 km) wide, making a blockade feasible if Iran chooses to act.
However, Iran’s threat to close the strait appears largely symbolic, as the parliamentary vote lacks backing from the country’s top leadership.
Jorge Leon, head of geopolitical analysis at Rystad Energy, told CNBC that markets are betting on a gradual de-escalation of tensions.
While Iran still holds the Strait of Hormuz blockade as a potential last resort, analysts generally view its implementation as unlikely.
Crucially, such action would severely backfire on Iran itself.
Currently embroiled in conflict with Israel and its supporter, the United States, Iran cannot afford to halt oil exports, as it desperately needs funds for military expenses.
Though the exact volume of Iranian oil exports through the Strait of Hormuz is unknown, blocking the strait would inevitably disrupt Iran’s own oil shipments.
U.S. Secretary of State Marco Rubio has labeled Iran’s potential blockade of the Strait of Hormuz as economic suicide.
In an interview with Fox News on June 22, Rubio emphasized that an Iranian blockade would harm other economies more than the U.S., ultimately failing to achieve Iran’s objectives.
According to OPEC’s monthly oil market report, Iran produced 3.3 million barrels per day last month.
Market research firm Kpler reported that Iran exported 1.84 million barrels of this output, with nearly all shipments bound for China.
Meanwhile, the New York stock market, which had been showing mixed signals, turned bullish as oil prices tumbled.
