Analysts sound alarm as oil prices soar due to Iran war

Analysts warned on Monday that the rise in oil prices is unprecedented, as the Middle East crisis deepens concerns about prolonged production outages and disruptions to shipping through the strategic Strait of Hormuz.

Oil prices were on track to post their biggest single-day increase on record on Monday, but their gains were sharply pared over the weekend following new attacks by the United States and Israel across Iran. Oil depots were also targeted.

international benchmark brent crude oil futures May delivery was trading 11.6% higher at $103.47 a barrel on Monday, while the U.S. West Texas Intermediate Futures The price for April delivery was up 12.2% to $101.97.

Brent futures rose to $119.5 per barrel at the start of the trading day, while WTI hit a trading high of $119.48.

Neil Atkinson, former oil chief at the International Energy Agency, said the effective closure of the Strait of Hormuz was unlike anything the energy market had ever seen before. Unless something changes soon, “we’re facing an unprecedented energy crisis that could be game-changing,” he told CNBC on Monday.

Countries in the oil-rich Middle East region are beginning to cut back on crude oil production. Iraq and Kuwait have already started shutting down production, and analysts have warned that the United Arab Emirates and Saudi Arabia could also be vulnerable if the Strait of Hormuz is closed for an extended period.

“There are oil reserves all over the world, but the important thing is that if this strait closure continues, the oil reserves that are deployed will be depleted and we will actually end up in a situation where oil production is shut down, and we will be in a crisis like we’ve never seen before in Iraq, and probably Kuwait, and probably Saudi Arabia as well,” Atkinson told CNBC’s “Squawk Box Europe.”

Asked what this means for oil prices, Atkinson said: “Sorry, but we’re entering the realm of educated guesses here. So there’s no precedent for anything like this. The sky is the limit.”

Normally, about 20% of the world’s oil and gas passes through the Strait of Hormuz, but since the war began, shipping traffic through this vital maritime corridor has all but stopped.

Oil prices fell below trading highs on Monday, shortly after the Financial Times reported that finance ministers from G7 countries will hold an emergency meeting on Monday to discuss the possibility of a joint release of oil from IEA-regulated reserves.

The UK Treasury and the French government confirmed to CNBC that the phone call would take place on Monday.

ExxonMobil chief economist Tyler Goodspeed told CNBC’s “Squawk Box Europe” on Monday that “the consensus was last week, and to some degree today,” that all countries except Russia were “interested in resuming normal traffic in the Strait of Hormuz.”

He added that the consensus was that “there is plenty of oil offshore and some strategic reserves to cover short-term gaps.” Goodspeed said he was skeptical of this view as the conflict enters its second week.

“Given the probability distribution of possible outcomes here, it seems to me that there are many more scenarios, and more likely scenarios, where the Strait effectively remains closed more severely for a longer period of time than there are scenarios where normal traffic resumes,” Goodspeed said.

Meanwhile, analysts at Société Générale warned that prolonged production shutdowns in Middle Eastern countries “significantly increase” the risk of difficulties restarting production.

“The next producer country at risk of production disruption, likely within the next five to seven days, is the UAE,” analysts said in a research note published on Monday.

“Qatar is similarly vulnerable, but its oil volumes are modest compared to its LNG exposure. Saudi Arabia does not face any immediate risk, but if the Strait of Hormuz remains closed for another two to three weeks, a closure could become a reality.”

—CNBC’s Holly Ellyatt contributed to this report.