US-Iran War Update: FOMC In Focus As Oil Prices Surge 3% After Houdis Attack Hormuz Tankers

Oil prices jumped around 3% on Monday as the US-Iran war continues. The surge in prices came after additional threats to supply from attacks in the Red Sea and the Gulf of Guinea extended fears about the world’s energy supplies. Now, the markets are focusing on the U.S. Fed’s September 15-16 FOMC policy meeting.

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Oil Price Soars Amid US-Iran War

According to Trading Economics data, crude oil price gained 2.32% to $102.376 a barrel at press time. Brent crude also gained 2.52% to $107.251 a barrel. The decision followed recent reports of further acts of aggression by Iran-backed groups and attacks on energy infrastructure.

The new strikes have created additional stress to the regional energy market, which is already fragile amid the US-Iran war. The Houthis reportedly continued to spread their activity in the Red Sea region in the south. The group took control of the Greater and Lesser Hanish Islands. The transfer would boost its proximity to a key shipping lane.

The Houthis also fired new missiles and drones at Saudi military targets. However, Iran has now denied its role in the latest combat in Yemen. South Korea decried an attack against Saudi civilian and economic facilities.

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The FOMC Rate Decision Is Now Getting More Clarity

The oil price rally has come at a critical time, just ahead of the Federal Reserve’s next rate move. The central bank’s rate prospects are in spotlight to assess if those higher energy prices will be an issue.

According to the CME FedWatch data, there is an 86.5% chance of a 25 bps Fed rate hike at the September 16 meeting. That would lift the federal funds target range from 3.50%-3.75% to 3.75%-4.00%.

Meanwhile, it shows a 13.5% probability of the Fed keeping rates unchanged. The numbers are based on market pricing as the Fed gets ready to make its decision as the US-Iran war escalates.

Whilst, financial institutions Goldman Sachs and JPMorgan also expect the Fed to raise interest rates by 25 basis points. For further context, the Fed rate hike odds have surged after the hot U.S. PPI inflation data last week.

Gulf Shipping Problems Worsen Supply Concerns

The most recent strikes have also dampened hopes for crude deliveries. Saudi Arabia has suspended operations on its East-West oil pipeline due to recent attacks. The pipeline connects the Saudi oil fields and the Red Sea, and is capable of transporting approximately 7 million bpd.

Meanwhile, Asian refiners are looking for clarity over deliveries from Saudi Arabia’s Red Sea port of Yanbu. If the pipeline remains suspended, it will add to the supply struggles amid the ongoing US-Iran war.

Also, discussions with Iran and Gulf Arab nations regarding a temporary shipping lane through the Strait of Hormuz, which is being eyed by Iranian President Mahmoud Ahmadinejad, were suspended. Iran blamed Saudi Arabia for having played a role in Oman’s decision.

The attacks follow the current tensions over the Strait of Hormuz. The waterway continues to be an important oil transport route for the world. Hence, new strikes in shipping could further disrupt energy flows, and keep crude prices volatile.

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