Oil prices jumped more than 2% after former President Donald Trump announced plans to impose a 20% shipping fee on vessels using the Strait of Hormuz and reinstate a naval blockade of Iranian ports. This pushed Brent crude futures for September delivery to $85.11 a barrel, up 2.14%, marking a one-month high. U.S. West Texas Intermediate (WTI) crude for August delivery also rose 2.27% to $79.91 a barrel, extending Monday's nearly 10% rally. These measures have escalated concerns about crude supplies from the Persian Gulf, a critical region for global oil shipments.
Trump stated that the United States would charge ships transiting the Strait of Hormuz at a rate of 20% on all cargo shipped, describing the U.S. as the "guardian" of the strategic waterway. He also indicated that Washington would reinstate its blockade of Iranian ports near the strait, a move confirmed by the Joint Maritime Information Center and U.S. Central Command, with enforcement beginning at 4 p.m. New York time on Tuesday. Furthermore, Trump suggested that countries benefiting from the strait's security, including Saudi Arabia, the United Arab Emirates, Qatar, Bahrain, and Kuwait, would be expected to reimburse the United States for protecting shipping routes.
Analysts are warning that these developments significantly increase the risk of military escalation and potential disruptions to oil supplies. Citi, for instance, cautioned that risks of military confrontation have "risen materially" if the proposed fees are implemented. Andy Lipow, president of Lipow Oil Associates, estimated that a 20% fee on crude cargoes could add approximately $16 per barrel to oil shipped through the strait. The market had previously anticipated a surplus in oil supplies, which is now in jeopardy if the strait experiences another shutdown. Before U.S. and Israeli strikes on Iran on February 28, roughly one-fifth of global oil supplies flowed through the Strait of Hormuz, and shipping volumes had just begun to recover after an interim agreement between Washington and Tehran.
The potential for continued hostilities could lead to "higher for longer" oil prices, especially if the Iranian regime withdraws from the memorandum of understanding. Nuvama Institutional Equities warned that a prolonged closure of the Strait of Hormuz could disrupt nearly 20 million barrels per day of crude flows, potentially driving oil prices to a range of $110 to $150 per barrel. Henry Hoffman, co-portfolio manager at Catalyst Energy Infrastructure Fund, highlighted that if exporters cannot ship crude, storage tanks could fill, forcing producers to halt production, making the effective supply loss much greater than just damaged infrastructure.
