Oil prices have seen their biggest gains since April, with West Texas Intermediate (WTI) trading near $78 a barrel and Brent crude closing above $83. This surge, following a 9.4% rally on Monday, comes after President Donald Trump's announcement to reimpose a blockade on Iranian ships passing through the Strait of Hormuz. Trump is also demanding a 20% reimbursement for all other cargo moving through the waterway, equating to roughly $30 million for a full supertanker. The blockade is set to commence at 4 p.m. ET on Tuesday, targeting vessels to or from Iranian ports. This action follows a third night of US strikes against Iran, which may continue for several more days. The US Central Command stated that US military forces would continue to support traffic flow for vessels not violating the blockade. This move has pushed both WTI and Brent to their highest prices since June 15, with Brent experiencing its largest single-day jump since May 2020. The increase in oil prices has also halted recent declines in US gasoline prices, with analysts expecting the national average to reach $4 per gallon soon.
Several entities have expressed strong opposition to Trump's demand for a 20% reimbursement. The International Maritime Organization (IMO) firmly rejected the idea, with Secretary-General Arsenio Dominguez stating there is no legal basis to introduce mandatory tolls for transit through international straits. Energy and shipping companies have also previously rejected similar proposals from Iran, emphasizing the principle of freedom of navigation. Chevron CEO Mike Wirth, when asked about paying fees to Iran for Strait passage, stated, "No, we wouldn't," and warned of setting a global precedent for such tolls.
Despite Trump's claim that the US would be "reimbursed" for providing safety in the Strait, Iran's Foreign Minister Abbas Araghchi called the 20% rate "too much" but acknowledged Trump was "absolutely right" about the general principle, asserting that Iran, as the "FOREVER" guardian of the Strait, would be fairer. The US Treasury Department has previously warned that paying Iran for passage would expose entities to sanctions violations, labeling it "maritime extortion."
The escalating tensions have already significantly impacted shipping in the Strait of Hormuz, a critical waterway through which 20% of the world's energy supplies typically pass. Traffic declined 52% week over week, with only 14 ships transiting on Sunday, compared to 19 on Friday and 24 on Saturday. Marine insurance markets remain cautious, with experts emphasizing the need for sustained stability before reassessing risk and pricing. This latest escalation follows recent US strikes on Iranian targets, retaliating for Iranian military attacks on commercial vessels with projectiles and drones, including one incident on Sunday night. While physical oil supplies haven't seen widespread disruptions yet, crude markets are already pricing in the risk of prolonged disruption and higher war-risk insurance premiums.
