Oil prices soar as tension eases but may be shortlived

Abu Dhabi Crude prices soared above $120 (Dh440.7) a barrel Tuesday, buoyed by Greece's long-awaited bailout by Europe, but analysts fear the oil market rally may be shortlived given the uncertainties facing global economic growth this year.

"The recent rally could eventually contribute to a global slowdown, so while oil-exporters benefit in the immediate term, this could eventually backfire as oil-importers suffer from high prices and their economies are pushed to the edge. Similar to previous commodity booms," said Said Hirsh, analyst with London-based Capital Economics.

Hirsh said Iran was unlikely to carry out its threat to close the Strait of Hormuz from where nearly 20 per cent of the world's seaborne oil passes, in protest against Western sanctions on its oil exports.

"I think this has yet some time to play out. The lack of global consensus on Syria, Russia's and China's stance in particular, has made it even more complicated," said Hirsh.

"This will surely keep the political premium on oil prices high for the foreseeable future."

Samuel Ciszuk, consultant with the London-based KBC Process Technology, agreed.

"Starting a war by trying to close the Hormuz strait would not bring Iran any benefits as it would deprive it of all its export revenue and hurt its few last remaining ‘friends' the most, India and China in particular," said Ciszuk.

Meanwhile, Bank of America Merrill Lynch said in a report yesterday that oil would remain a key constraint on global economic growth, suggesting that prices will continue to spike to ration demand.