As the Iran War enters its week oil prices are going up and Kharg Island is in danger

The whole world is facing a problem with energy because of the conflict in Iran. This is the disruption in history. The price of oil went up. West Texas Intermediate oil rose above $100. Then it went down to $98.90 on Sunday night. Brent crude oil is now over $106 per barrel. The reason for this is that the Strait of Hormuz is closed and there might be attacks on Irans oil infrastructure. 

The "war premium" is still making prices high even though the International Energy Agency released a lot of oil from its emergency supplies. Traders are worried about the worst-case scenario. The White House says that military attacks, which were on military targets before might now target Kharg Island. This island is important for Irans oil exports. 

Kharg Island and the Shift in US Military Strategy

The main reason for the change in oil prices is the US military strategy. President Donald Trump said that no oil infrastructure was harmed in the attacks on Kharg Island.. Now the US is using these assets as leverage. The US Ambassador to the UN Mike Waltz said that if Iran keeps interfering with ships the US might destroy Irans energy infrastructure. 

Kharg Island is crucial because it handles all of Irans oil exports. If this island is attacked it will stop the flow of oil. Might lead to retaliation in the Persian Gulf. This could put energy assets in countries at risk. 

The Strait of Hormuz is an important place for oil supply. Usually 20% of the worlds oil passes through this strait. Now it is blocked. Since the war started Irans mining operations and attacks on tankers have made it dangerous for ships to pass through. 

Here are some key points: 

1. The price of oil has increased by 40% since the US and Israel started working 

2. The White House wants to send an escort to protect tankers but it will take some time to implement this plan. 

3. The oil market is very sensitive to news and prices can change quickly. 

Market Response and the Road Ahead

The International Energy Agency released 400 million barrels of oil to try to control the price increase.. Traders do not think this is enough to solve the problem. The US also released oil from its Strategic Petroleum Reserve. However the timing of this release is not certain. Some countries will get the oil at the end of March while others will get it sooner.

The US is trying to increase its oil production to reduce the impact of the price increase. The government has approved projects in the Gulf of Mexico and instructed companies to restart pipelines and rigs in California. These actions are driven by politics and economics. The government wants to keep fuel prices low.

There are risks in the market and the situation can go in different ways. If Iran keeps the Strait of Hormuz. If the US attacks Iranian oil terminals the price of oil might stay high for a long time. On the hand if the naval "safe corridor" is established the price of oil might go down quickly. The market is currently driven by risk rather, than demand. Investors should expect volatility and "headline risk" until the situation is resolved.