Oil prices swung sharply on Tuesday, caught between two opposite forces: a report of an American strike on an Iranian island in the Strait of Hormuz, and fresh hopes that diplomacy might still end the eight-month war between the United States and Iran. For Pakistan, which imports most of its fuel, that tug-of-war decides how expensive petrol and transport may become.
Monday had brought a fall. Brent crude — the benchmark, or reference price, used for much of the world’s oil — settled 7.63 percent lower at $104.77 a barrel, after talks between Iranian officials and Qatari mediators raised hopes of a deal. American oil, known as West Texas Intermediate, fell to $96.46 a barrel.
The strike report pushes prices back up
Early on Tuesday, prices bounced back. Brent rose 0.5 percent to $105.25 a barrel in early Asian trading, according to Reuters, and by 0744 GMT it was up 1.76 percent at $106.61, while American oil rose 1.66 percent to $98.06. The trigger was a Wall Street Journal report, citing American officials, that the United States had struck Iran’s Qeshm Island.
Qeshm Island sits in the Strait of Hormuz, the narrow waterway between Iran and Oman through which about a fifth of the world’s crude oil and liquefied natural gas normally travels. Some American officials described the strikes as limited and defensive, aimed at stopping Iran from attacking commercial ships in the strait.
But the diplomatic side of the story did not go away. A senior Iranian official told Reuters on Tuesday that the two countries were still far from a deal and that Tehran would not accept what it called Washington’s excessive demands. Later in the American session, Bloomberg reported Brent slipping below $102 a barrel as traders weighed an unconfirmed report that Washington had approved a draft memorandum presented by Qatari mediators.
Gulf markets stay mixed
Gulf share markets were mixed on Tuesday. Saudi Arabia’s benchmark index slipped 0.2 percent, and Qatar’s index fell 1 percent, while Dubai rose 0.6 percent and Abu Dhabi added 0.3 percent, according to Reuters.
What it means for Pakistan
Pakistan imports most of the oil it uses, so a higher world price quickly becomes a bigger import bill. That puts pressure on the rupee, on the cost of petrol and diesel at home, and on prices generally, because transport costs feed into almost everything.
Tuesday’s swing is a warning against expecting quick relief. If diplomacy succeeds and shipping through Hormuz returns to normal, prices could ease over time. If fighting resumes after the American elections, prices could jump again just as fast. Millions of Pakistanis also live and work in the Gulf, so continued tension there keeps jobs and remittances — the money workers send home — under a cloud as well. For now, the honest picture is uncertainty: one day’s fall in oil does not mean the crisis is over.
Sources: Reuters, Bloomberg. Written in our own words for information only — not investment advice.