$166 a barrel? Middle East oil gives clue to where all prices could be headed if Iran war drags on

In this article @CL.1 Follow your favorite stocks CREATE FREE ACCOUNT The Iran Abadan, left, a crude oil tanker owned by the National Iranian Tanker Company in Dubai, United Arab Emirates. Charles Crowell | Bloomberg | Getty Images The extreme spike in oil prices seen in local markets in the Middle East could give investors a glimpse into to where U.S. and Europe prices are headed if the Strait of Hormuz isn't opened soon. Dubai crude oil prices surpassed $166 a barrel to a new record high on Thursday, according to market data provider Platts. Dated Brent and West Texas intermediate Cushing's are trading around the $100 mark after historic runs higher. The local markets for oil are often overlooked, but are now seen as a possible precursor of what could be ahead if the conflict doesn't end soon. Dubai and Oman current prices reflect the steep severity of the shortage in the Gulf, according to Natasha Kaneva, JPMorgan's head of commodities research. But that doesn't mean the American market will be spared another sharp jump, she said. "If the Strait does not reopen, this divergence is unlikely to persist," Kaneva said in a note to clients this week. "Brent and WTI will ultimately reprice higher as Atlantic basin inventories are drawn down and the global market is forced to clear at a materially tighter supply level." West Texas Intermediate crude is not seen as an ideal substitute like Oman, said Andy Harbourne, senior oil markets analyst at Wood Mackenzie. But it could become a more sought-after alternative if transit through Hormuz remains depressed, given that buyers will turn more desperate. The Hormuz factor The Strait of Hormuz, a key passageway connecting the Persian Gulf and sea, is where around one-fifth of the world's oil transits. Daily transit calls have tumbled to nearly zero from highs above 120 seen earlier this year, data analyzed by Charles Schwab shows. Prices for crude directly leaving Middle East countries such as Dubai has risen faster than oil l...