Oil and Gas

Biggest 'black swan' event for oil markets is disruption in the Strait of Hormuz, expert says

Key Points
  • "If we were to see the temperature change and somebody start to disrupt this traffic, that would be the kind of event that would send the markets into the kind of panic we haven't seen for 10 or 15 years," Dave Ernsberger, S&P Global Platt's global head of commodities pricing, said.
  • The Strait of Hormuz is a crucial channel that oil producers use to transport crude from the Middle East to markets around the world.
  • Analysts this week told CNBC that oil prices could shoot through $100 if Iran blocks the Strait of Hormuz.
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Oil market vulnerable to an 'increasingly risky environment': Expert

The biggest black swan event in the oil market is a disruption to the most critical chokepoint in the Middle East, according to an analyst from S&P Global Platts.

"The market is extremely exposed to any disruption to vessel traffic in the Strait of Hormuz," Dave Ernsberger, the firm's global head of commodities pricing, told CNBC's "Capital Connection" Thursday.

The Strait of Hormuz is a crucial channel that oil producers use to transport crude from the Middle East to markets around the world. It is 21 miles wide at its narrowest point and, in 2018, around 21 million barrels were transported via the waterway daily, according to the U.S. Energy Information Administration.

"If we were to see the temperature change and somebody start to disrupt this traffic, that would be the kind of event that would send the markets into the kind of panic we haven't seen for 10 or 15 years," Ernsberger said.

Analysts told CNBC this week that oil prices would soar to over $100 if Iran blocks the strait. "Without a doubt, there is one thing that is on everybody's mind," Ernsberger said when asked what would be the biggest "black swan" event for oil markets. A black swan event refers to a rare and unpredictable occurrence that has severe consequences for financial markets.

"It came into the picture this week, it's going to be on the mind of the market for the rest of the year in terms of a black swan event," he added. Tensions between Washington and Tehran flared last week after an American airstrike killed Iran's top general. Iran responded by firing more than a dozen ballistic missiles at U.S. targets in Iraq that resulted in no casualties.

The situation appeared to ease following President Donald Trump's announcement that more sanctions, instead of a military retaliation, would be imposed on Iran.

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"Iran did not go after shipping," Ernsberger said. "But this is the thing that everybody has their eye on in the coming months." He added that it may have been a "close escape" that the Strait of Hormuz was not targeted.

"Everybody knows though, that's the vulnerable chokepoint, the vulnerable spot that, in this kind of political environment, could really be in play," he said.

— CNBC's Sam Meredith, Amanda Macias, Jacob Pramuk, Christina Wilkie and Riya Bhattacharjee contributed to this report.