Hormuz Closure May Send Brent Oil to $200 a Barrel, SocGen Says

Jan. 9 (Bloomberg) -- Brent crude futures may surge to as much as $200 a barrel for a limited period if Iran halts shipping through the Strait of Hormuz, according to Societe Generale SA.

Iran, which has threatened to block the waterway if sanctions are imposed on its crude exports, would be able to shut the strait for about two weeks, the bank said in a report. Oil prices would subsequently advance to a range from $150 to $200 a barrel, damaging the global economy, according to SocGen. Still, such an event isn’t likely, the bank said.

“A credible threat from missiles, mines, or fast attack boats is all that it would take for tanker insurers to stop coverage, which would halt tanker traffic,” wrote Mike Wittner, the bank’s head of oil market research in New York. “We estimate that the probability of this very high impact event at 5 percent.”

The U.S. tightened economic sanctions against Iran over its nuclear program on Dec. 31, and the European Union is weighing a ban later this month on purchases of Iranian crude. Brent crude traded at about $114 a barrel on the ICE Futures Europe exchange in London today.

An EU embargo will, if fully implemented, push futures to a range from $125 to $150 a barrel, according to Societe Generale. The extent of price gains will depend on whether Japan and South Korea participate in the ban, as this would require additional replacement crude from Saudi Arabia, Wittner said.

--Editors: Rachel Graham, Raj Rajendran

To contact the reporter on this story: Grant Smith in London at gsmith52@bloomberg.net

To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net