U.S. Clearing Mines From Strait Of Hormuz As Oil Prices Remain Volatile

While the media might not be talking about it too much anymore, the drama continues in the Middle East and the Strait of Hormuz. Iran and the United States continue negotiating for peace, but the Strait remains blockaded by the U.S., specifically targeting Iranian ports. It is a very good strategy for getting Iran to the table, essentially choking off their ability to make any money. The problem is that 20-percent of the world's oil flows through the Strait of Hormuz.

Amid the fighting while there was no ceasefire in place, Iran decided to put down mines in the Strait of Hormuz. Which, for everyone claiming President Trump is committing war crimes because they don't like the war, layering commercial shipping lanes with mines is an actual war crime. As the peace talks continue, the U.S. has started clearing out those mines, most of which the Iranians will not divulge a location.

It is a long, grueling process that could take months, and with that, the world oil market will take a hit. It already has in the last month or so, with prices reaching over $120 a barrel before stabilizing. But combining clearing the Strait of Hormuz, strained peace talks, and keeping the blockade in place makes for a tough situation.

Energy analyst David Blackmon says this already difficult situation is compounded by the regional instability.

"It is not a combat-free zone...there are safety concerns in addition to everything else," he says.

Indeed, even amid a ceasefire, Iran has fired at numerous vessels in the Strait of Hormuz. The U.S. Naval blockade has had its intended effect so far, but the fact remains Iran is still causing issues where they can.

Which means as long as the shenanigans continue, the more people will pay the price.

"The longer this lingers, the higher oil prices are likely to go...we are in a market that is undersupplied by about 10-million barrels of oil per day," says Blackmon. "That means you will have a lot of different people bidding on these cargos and driving prices up."

Of course, higher oil prices mean higher prices for everyday Americans at the pump. Gas prices have risen dramatically recently and have sat well above $3 on average. That will continue, at least for as long as the Iranians refuse to negotiate with serious intention.

"For every $10 the oil price goes up, you will see 20 or 25 cents added to gasoline...and unfortunately, it works basically as a regressive tax on households," Blackmon says.

It is a waiting game right now. If the U.S. can get a deal they like, where they have influence over oil flowing through the Strait of Hormuz, the U.S. could be set up for a huge economic boom. The short-term pains could be worth the long-term gains.

It is painful right now. But if a peace deal can be achieved relatively soon, the damages could be offset.