Iran shutting Strait of Hormuz will 'ignite a sharp spike in oil prices'

CLOSING the Strait of Hormuz will have devastating consequences for the global economy and "ignite a sharp spike in oil prices", financial experts have predicted.

Iran's parliament has approved the closure of the critical Strait of Hormuz, through which a fifth of the world's oil and liquefied natural gas passes. 

The country's Security Council has the ultimate decision on the closure and the world is holding its breath.

Speaking to Newspage, financial experts predicted that oil prices will soar and the Pound will be hit, with evidence of this already happening.

Riz Malik, Director at R3 Wealth, predicts a spike in oil prices if the Strait of Hormuz is closed with “a lot of market volatility in the week ahead.”

He continued: "The supply of oil has been one of the biggest concerns of this conflict with the Strait of Hormuz seeing 20% of the oils supply passing through it. Following the US strike and Iran contemplating their next steps which includes meeting with Russia, we could see a spike in oil prices this week. 

“Iran realises that economic retaliation is just as effective as military options against an opponent it cannot beat on the battlefield alone. Expect a lot of market volatility in the week ahead.”

Harry Mills, Director at Oku Markets, said the Pound had already dipped today and that could lead to higher inflation in the UK.

He added: "Geopolitical risk is now a key driver of FX volatility, and the Iran conflict has the potential to trigger a broader risk-off move in global markets. The pound dipped by more than half a per cent against the US dollar since the market reopened after the weekend and the news of the United States' bombing of Iran. 

"Should tensions escalate further, the pound will likely lose ground across the board as investors seek safe havens such as the dollar, Japanese yen, Swiss franc, gold, and government bonds. Sterling is seen as a relatively riskier currency, and certainly not as a safe haven, a status underlined by recent poor economic data and the market's lack of faith in the Chancellor's fiscal plans. 

“A weaker pound could feed through into higher inflation via more expensive imports, particularly energy. If the Bank of England feels compelled to keep interest rates higher for longer to anchor inflation expectations, this could delay or even reverse expected mortgage rate cuts.”

Ken James, Director at Contractor Mortgage Services, said crude oil could soar “well beyond $150 per barrel — levels not seen since the 2008 financial crisis”.

He continued: "While the final decision rests with Iran’s powerful Security Council and has not yet been made, the symbolic move has begun to send shockwaves through energy markets. 

"Analysts warn that any actual closure could ignite a sharp spike in oil prices, with estimates suggesting crude could soar well beyond $150 per barrel — levels not seen since the 2008 financial crisis. Investor sentiment is already showing signs of a risk-off shift. 

“Safe-haven assets like gold, U.S. Treasuries, and the Swiss franc could see significant inflows if tensions escalate. As markets await a final decision from Tehran, traders are on high alert. The Strait of Hormuz may still be open for now but the global economic ripple effects are already being felt.”

Tony Redondo, Founder at Cosmos Currency Exchange, said he did not expect Iran to close the Strait of Hormuz.

He continued: "Iran’s bark is worse than its bite, so a threat to close the Strait of Hormuz that could disrupt 20% of global oil and LNG and spike Brent crude to over $100 a barrel is a predictable initial response. 

"Doing it is altogether another matter. Besides, a full closure is improbable due to Iran’s economic reliance on the strait and historical precedent, but targeted disruptions remain a risk. 

“So far, the response in the European markets is a muted relief that a nuclear threat is now gone from the region. The Dollar has strengthened a fraction. The concern is more of an increase in terrorist activity against the West.”

Kundan Bhaduri, Entrepreneur at The Kushman Group, fears the markets will “panic” if Iran shuts the Strait of Hormuz.

He said: "If Iran shuts the Strait of Hormuz, markets will not flinch, they will panic. With 20 percent of the world's oil flowing through that narrow corridor, a closure could send oil prices soaring past $120 per barrel almost instantly. 

"That means higher costs for fuel, transport, food, and a fresh inflation headache just when central banks are too nervous to cut rates and too late to raise them. Investors will bolt for safety: gold, the US dollar, and possibly Bitcoin, though calling that a safe haven is still a stretch. 

"Sterling and risk currencies will wobble, and volatility will spike across commodities and FX. This isn’t just a geopolitical flashpoint, Hormuz a global economic tripwire. 

"For entrepreneurs and households alike, energy shocks like this aren’t theoretical. They hit the bottom line, the weekly shop, and the price at the pump. In a fragile global economy already teetering, Hormuz becoming a no-go zone would light the fuse on crisis pricing."

David Belle, Founder and Trader at Fink Money, predicted that Iran will not close the Strait of Hormuz as it cannot afford to.

He added: "Oil is lower after Iran did not shut the Strait of Hormuz. Why? Because Qatar and China would have actually been the two nations who’d have fared worse from this, and they are both Iranian allies. 

“The US has just flown 7 B2 bombers halfway around the world, refuelled in midair and blown up very heavily fortified bases without being caught by Russian or Qatari radar. So naturally there is some appeasement that will be taking place now, which is great for stocks to go higher.”