Fresh attacks by US and Israel puncture market relief over peace talks

(Originally published May 26 in “What in the World“) U.S. forces on Monday launched strikes against Iranian missile launch sites and against boats trying to lay mines.

The fresh U.S. attacks came as Israel struck more than 70 Hezbollah targets in southern Lebanon. Israeli Prime Minister Benjamin Netanyahu said Israel would not bow to Iran’s demand that it cease strikes against the Iran-backed militia as a precondition for negotiations, posting that “we are not removing our foot from the pedal. On the contrary, I said to press on the pedal even more.”

The latest strikes appeared likely to stall ongoing peace negotiations in Qatar. While markets seem optimistic that Trump’s latest “agreement in principle” with Tehran to reopen the Strait will succeed, Washington and Tehran remain at odds over key issues. “There is no change,” Fereidun Fesharaki, Chairman Emeritus of energy consultancy FGE NexantECA, told CNBC. “We are not nearer a peace agreement than we were several weeks ago.”

Carlyle’s chief strategy officer of energy pathways Jeff Currie told CNBC that Asia’s oil inventories already appears to be at “minimum operating levels.” That’s the point at which, as Saudi Aramco CEO Amin Nasser warned a couple of weeks ago, levels can’t go any lower without damaging pipelines and storage systems. And Currie says Europe is close and the U.S. could face shortages by July. Unless the Strait of Hormuz is reopened and shipments of crude resume, the International Energy Agency Executive Director Fatih Birol warned last week, oil markets could enter the “red zone” by July or August.

With supplies already so low, even an immediate resumption of shipments through the Strait won’t relieve supply pressures for weeks or even months. It will take until at least next year before the 2,000 tankers now clogging the Gulf can steam through the Strait to their destinations, offload their cargoes and get oil shipments back to normal levels, according to Abu Dhabi National Oil Company CEO Sultan al-Jaber. And some wells have already had to shut down. Getting them pumping again, according to S&P Global could take up to seven months.