As Western nations back Israel, Iran threatens to close Strait of Hormuz, upend global economy

Iran's threat to close the Strait of Hormuz as the U.S. and other Western nations coalesce around Israel in the Middle East battle is raising concerns about such a move disrupting the entire global energy market and possibly sending oil prices as high as $130 a barrel.

"Iran reserves the right to close the Strait of Hormuz if the United States joins Israel in military action against the Islamic Republic," Ali Yazdikhah, a member of parliament in Iran, said Thursday.

The strait, between the Persian Gulf and the Gulf of Oman, provides the only water passage from the Persian Gulf to the Arabian Sea and is one of the world's key import-export channels. 

Iran produces roughly 6% of the world's oil and natural gas supply. It is the world's ninth-largest oil producer and the third-largest natural gas producer. 

The threat by Iran comes about one week after Israel launched missile strikes on Iran, amid the United States' failing effort to get Tehran to agree to a deal in which it would stop enriching uranium for a nuclear weapon. 

Iran responded to Israel's attacks with its own air strikes, as Trump seemed to go back and forth on whether to provide military support for Israel and its efforts. 

However, Trump on Thursday said through White House press secretary Karoline Leavitt that he would decide within two weeks whether to provide such support.

Days earlier, world leaders, including Trump and those from England and France, signed a statement saying Israel had a right to defend itself and that Iran was a source of terror that should not have a nuclear weapon.

 JP Morgan has predicted oil prices could reach $120-$130 a barrel if Iran shuts down the strait.

"Markets maintained a tenuous holding pattern this week as investors monitor the escalating conflict between Iran and Israel. Oil (+3.6%) prices topped $78 per barrel for the first time since January amid fears of war escalation in the Middle East, with ongoing concerns about flows from Iran and threats to vessel traffic in the Strait of Hormuz," said a JP Morgan analysis on Friday. 

"While markets are on edge, it seems like crude prices have some more room to rise before they start to cause real friction for the U.S. economy," the analysis also said.

If Iran closes the strait, countries worldwide would have to pay higher prices on the global market because there would be less oil, and those prices could likely be passed off to consumers. But Iran could also suffer financially because its oil would no longer be available for sale.

Oil prices increased by about 3% on Thursday as the Israel-Iran conflict continues. However, they dropped on Friday, after Trump said there is a chance Iran might come to the table to negotiate. 

Citi analyst Spiro Dounis said that "disrupting oil supply isn’t in the interest of either Iran or the U.S.,” according to Yahoo! News. 

"If Iran’s 1.1 million barrels per day of oil exports were halted ... Brent prices would only rise to around $75–78 per barrel — offering limited upside from current levels," he also said.