Global oil prices surged by more than 2% in early trading on Monday. This increase follows Israel's order for troops to advance further into Lebanon. The action targets the Iranian-backed Hezbollah militant group, despite a ceasefire announced over six weeks ago.
US crude futures rose by $2.37, or 2.71%, reaching $89.73 a barrel. Brent crude futures also climbed by $2.16, or 2.37%, to $93.28 a barrel. This escalation directly reverses last Friday's market trends, when Brent and WTI prices fell by 1.8% and 1.7% respectively. Those declines were driven by optimism surrounding potential ceasefire extensions between the US and Iran.
The renewed fighting, coming immediately after US-hosted peace talks in Washington, reduces expectations for an extended ceasefire. This broader conflict, stemming from the Iran war, began on March 2. Hezbollah started firing rockets and drones into Israel to support Iran. A ceasefire was reached in mid-April, but sporadic exchanges of fire continued. The ongoing instability in the region poses a significant risk to global energy markets and could affect Ghana's import costs.
IG analyst Tony Sycamore highlighted rising concerns about mines in the Strait of Hormuz. This strait is a crucial shipping lane for about a fifth of the world's oil and gas. Reports from an Axios reporter on X indicated Iran had dropped more mines in the strait recently. This would contravene the existing ceasefire agreement and efforts to reopen the strait fully. US Defence Secretary Pete Hegseth had previously warned that further mining would be a violation.
The Strait of Hormuz has been largely closed since February, when the conflict began with US and Israeli strikes. Its continued disruption means that even if a future agreement is reached, a significant flood of oil supply is unlikely. This situation suggests sustained upward pressure on oil prices. Ghana, an oil importer, will face higher costs for fuel and energy.
This surge in oil prices occurs despite recent lacklustre economic data from China. China's factory activity stalled, indicating a loss of economic momentum due to contracting exports and cost pressures. Normally, a slowdown in a major economy like China would dampen oil demand and prices. However, geopolitical risks currently outweigh these demand concerns.
For Ghana, a sustained increase in oil prices carries significant economic implications. Higher crude oil costs translate directly into increased domestic fuel prices. This can exacerbate inflation, affecting transportation costs and the price of goods and services across the economy. The Bank of Ghana, which recently held its policy rate steady due to inflation concerns, might face renewed pressure to adjust monetary policy. The International Monetary Fund (IMF) has already warned that the Iran war will leave lasting scars on the global economy. This underscores the severity of current geopolitical risks.