Oil prices experienced a significant jump after President Donald Trump announced the reinstatement of the US blockade on Iran and a new 20% charge on all cargo transiting the Strait of Hormuz. US crude oil closed 9.4% higher at $78.14 per barrel, and international Brent crude oil surged 9.6% to $83.30 per barrel, marking Brent's largest single-day increase since May 2020. These price levels are the highest seen since June 15. The blockade, set to begin at 4 p.m. ET on Tuesday, targets vessels traveling to or from Iranian ports and coastal areas, with the US stating it will continue to support traffic for other vessels.
The International Maritime Organization (IMO) quickly rejected Trump's proposal for transit fees, with Secretary-General Arsenio Dominguez stating there is no legal basis to introduce mandatory tolls for passage through international straits. This sentiment was echoed by energy and shipping companies, who have previously dismissed similar ideas from Iran. The US Treasury Department has also warned that paying Iran for passage through the strait could lead to sanctions violations, labeling it as "maritime extortion." Chevron CEO Mike Wirth previously stated they would not pay such fees, emphasizing the principle of freedom of navigation.
Even before Trump's announcement, traffic in the Strait of Hormuz, a crucial waterway through which 20% of the world's energy supplies typically pass, had already plummeted. Data from MarineTraffic by Kpler showed a 52% week-over-week drop in traffic, with only 14 ships transiting on Sunday. The announcement has led to heightened concerns about increased war-risk insurance premiums and potential delays for shipments. Analysts, such as Patrick De Haan from GasBuddy, anticipate national average gasoline prices to reach $4 per gallon soon, within the next 7-10 days. Iran's Foreign Minister Abbas Araghchi, however, ironically agreed with Trump on the 20% figure, but declared Iran would be the "GUARDIAN OF THE HORMUZ STRAIT" and would be fairer.
