If there is disruption in Iran’s oil supply and Strait of Hormuz, crude oil prices will increase, claims report.

According to a report, if there is any disruption in Iran’s oil supplies and tensions in the Strait of Hormuz, crude oil prices may rise from USD 95 to USD 110 per barrel.

If Iran’s supply of about 3.3 million barrels per day (mbpd), which is about 3 per cent of global supply, is disrupted, and assuming a price increase of 3-5 per cent for every 1 per cent of supply disruption, it could lead to a 9-15 per cent rise in prices, the Equirus Securities report said.

At a base price of USD 70 per barrel, this means that crude oil prices could increase by about USD 6-11 per barrel, taking prices to USD 76-81 per barrel, this would only be due to direct loss of supply.

However, the report also notes that markets do not typically evaluate wars as linear. It added that if tensions were likely to affect the Strait of Hormuz, the premium could be structural, not proportional.

The report also said the threat of a partial disruption could create a geopolitical premium of USD 20-40 per barrel, pushing prices to USD 95-110 and above.

“The threat of a partial disruption could add a geopolitical premium of USD 20 – USD 40 per barrel, allowing prices to reopen to USD 95 – USD 110+, far outweighing the impact of Iran barrels alone,” the report said.

The report also noted that so far the market has reacted in a textbook manner, possibly in anticipation of rising tensions. Since the United States began deploying military assets to the Middle East, crude oil prices have risen nearly 10 percent as traders priced in a major geopolitical risk premium.

The report said oil typically overreacts initially, absorbing a geopolitical risk premium, and then adjusts gradually as trade flows re-route and fundamentals re-establish.

It added that the real challenge is not to predict the initial surge, but to estimate how long the disruption and absorbed premium will last.

The United States and Iran are currently in a high-risk standoff over Iran’s nuclear program and its ability to produce nuclear weapons. Although recent talks in Geneva have shown some progress, the US maintains heavy economic sanctions and a massive military presence in the region.

Meanwhile, a third round of nuclear talks between the United States and Iran ended in Geneva on February 26, without a final agreement, although both sides reported “significant progress”.