Oil gains over 2% as market weighs Iran war supply risks

Oil prices settle up 3% after renewed Iranian attacks on UAE

Impact of Renewed Iranian Attacks on Oil Prices and Global Supply

By Stephanie Kelly

Oil Market Reaction and Price Movements

LONDON, March 17 (Reuters) - Oil prices settled up more than 3% on Tuesday, as renewed Iranian attacks on the United Arab Emirates heightened concerns about the worsening outlook for global supply if there is no quick resolution to the U.S.-Israeli war with Iran, now in its third week.  

Brent crude futures settled up $3.21, or 3.2%, to $103.42 a barrel while U.S. West Texas Intermediate crude settled up $2.71, or 2.9%, to $96.21.

Supply Disruptions and Market Uncertainty

The Iran war shows no signs of abating. While oil futures have not repeated the brief surge to nearly $120 a barrel from earlier in the month, the attacks on oil installations by Iran and the ongoing disruption to shipping through the Strait of Hormuz - a vital gateway for about 20% of the world's oil and liquefied natural gas trade - has traders girding for long-term impairment to supply that could keep prices elevated. 

"The risks remain stark: It only takes one Iranian militia to fire a missile or plant a mine on a passing tanker to reignite the entire situation," IG market analyst Tony Sycamore said in a note. 

UAE Oil Infrastructure and Global Demand

Iran renewed attacks on the UAE on Tuesday, causing oil loading at the port of Fujairah to be at least partly halted after the third attack in four days ignited a fire at the export terminal. Fujairah, located on the Gulf of Oman just outside the Strait of Hormuz, is a critical exit point for oil volumes equivalent to roughly 1% of global demand. 

The effective closure of the strait has forced UAE, the Organization of the Petroleum Exporting Countries' third-largest producer, to reduce its output by more than half, two sources told Reuters.

Middle East crude benchmarks have soared to record highs, becoming the world's most expensive oil, with traders blaming the price spike on reduced supply available for delivery.

Severe Disruptions and International Response

SEVERE DISRUPTIONS 

Global Political and Military Reactions

Several U.S. allies rebuffed Donald Trump's call on Monday to send warships to escort shipping through the strait, drawing criticism from the U.S. president, who accused Western partners of ingratitude after decades of support. Germany's defence minister responded by saying that "this is not our war, we have not started it." 

On Tuesday, President Emmanuel Macron said France would never take part in operations to unblock the strait, and would only participate in a coalition that could provide freedom of navigation once hostilities ended.

Shipping Status and Market Outlook

Oil tankers are "starting to dribble through" the Strait of Hormuz, White House economic adviser Kevin Hassett told CNBC on Tuesday, reiterating the Trump administration's position that they see the Iran conflict lasting weeks, not months. On Monday, Brent lost 2.8% while U.S. WTI fell by 5.3% after some vessels sailed through the critical Strait of Hormuz.

"While that has eased concerns about an immediate hit from locked-up Middle Eastern barrels, traders still expect the disruption to be severe," investment bank Cavendish said in a note.

Among the vessels that have transited the strait are those operated by Iran, however. 

Future Price Predictions and Strategic Reserves

Oil prices still have the potential to be higher by the end of March, with technical analysis showing WTI's medium-term resistance at $124 a barrel, said OANDA analyst Kelvin Wong. 

To curb rising energy costs, the head of the International Energy Agency suggested member countries could release more oil, in addition to the 400 million barrels they have already agreed to draw from strategic reserves.

(Reporting by Stephanie Kelly in London and Anushree Mukherjee in BengaluruEditing by David Goodman, David Gaffen, Rod Nickel)