Shell CEO Warns of ‘Huge Impact’ If Strait of Hormuz Blocked

Shell Plc, one of the biggest traders of oil and natural gas, has contingency plans in case the conflict between Israel and Iran disrupts flows from the region, warning that a potential blockage of the Strait of Hormuz could deliver a substantial shock.

“If that artery is blocked, for whatever reason, it has a huge impact on global trade,” Chief Executive Officer Wael Sawan said at the Japan Energy Summit & Exhibition in Tokyo. “We have plans in the eventuality that things deteriorate.”

The global energy market has been transfixed by the conflict between Israel and Iran, including the possibility the US may decide to join the assault. So far, while crude has spiked due to the hostilities, there’s been no major interruption to flows of energy, although traders are on high alert.

About a quarter of the world’s oil trade passes through the Strait of Hormuz, which links the Persian Gulf to the Indian Ocean. In the past, Iran has targeted ships traversing the chokepoint, and has threatened to block the waterway. In recent days, ships’ signals have been jammed.

“What is particularly challenging right now is some of the jamming that’s happening,” said Sawan, referring to the interference in navigation signals in and around the Persian Gulf. Shell is “being very careful” with shipping in the Middle East due to the conflict, he said.

Senior US officials are preparing for the possibility of a strike on Iran in the coming days, according to people familiar with the matter, a sign that Washington is assembling the infrastructure to directly enter the conflict with Tehran. The situation is still evolving and could change, they said.

“The risks of serious energy supply disruptions will rise if the Iranian leadership believes that they are facing an existential survival threat,” RBC Capital Markets LLC analysts including Helima Croft said in a note. “Direct US entry into this conflict could be a catalyst for more direct disruptive actions against tankers and critical infrastructure in the region.”

Global oil benchmark Brent climbed as much as 1.3% to $77.66 a barrel on Thursday. That neared the intraday peak of $78.50 seen on June 13 — the highest price since January — when Israel began its attacks against Iran.

In recent days, Qatar asked tankers to wait outside the strait until they’re ready to load, while Japanese shipper Nippon Yusen KK instructed its vessels to maintain a safe distance from the shore while navigating Iranian waters.