Escalating Conflict Sends Oil Prices Soaring
The conflict between the US and Iran has escalated further, putting oil markets in an even more precarious situation than at the start of the Middle East crisis, according to a warning from the Treasury.
Oil prices are expected to remain high in the short term due to the ongoing conflict, which has led to a breakdown in a memorandum of understanding over the Strait of Hormuz. The global Brent crude oil benchmark has retreated to near $US90 a barrel after reaching as high as $US100 in recent days.
The Treasury's briefing to Treasurer Jim Chalmers warned that if the status quo persists, oil prices could climb even higher. Strategic reserves have already been significantly drawn down, reducing available oil and fuel buffers, while attacks by Iran-backed Houthi militias threaten to shut down routes used to bypass Hormuz.
The situation is considered more perilous than during the original outbreak of fighting, which saw oil prices peak at $US120 a barrel. Treasury's briefing noted that compared to pre-MoU disruptions, the current situation affects more Gulf output, placing additional pressure on inventories to meet supply shortfalls.