Oil prices experienced a significant surge, with West Texas Intermediate (WTI) futures jumping 9.4% to settle near $78 per barrel and Brent crude closing above $83 per barrel. Both benchmarks reached their highest levels in nearly a month. These gains extended in post-settlement trading after Trump hinted at potential strikes on Iran. This upward trend marked Brent's largest single-day increase since May 2020. The market's reaction was primarily driven by former U.S. President Donald Trump's announcement to reinstate a blockade on Iranian ships in the Strait of Hormuz and impose a 20% charge on all other cargo transiting the strategic waterway.
Trump stated on Truth Social that the U.S. would levy a "rate of 20% on all cargo shipped" through the Strait of Hormuz, describing the U.S. as the "guardian" of the vital oil transit route. He also announced the reinstatement of a blockade on Iranian ports near the strait, which the U.S. Central Command later confirmed would take effect at 4 p.m. ET on Tuesday, targeting vessels to or from Iranian ports and coastal areas. This move has been met with concerns from analysts like Rebecca Babin of CIBC Private Wealth Group, who noted it reintroduces geopolitical risk to crude markets. The International Maritime Organization (IMO), through Secretary-General Arsenio Dominguez, rejected Trump's proposal, stating there is "no legal basis through which to introduce mandatory tolls" for passage through international straits.
The proposed 20% transit charge could amount to roughly $32 million for a fully loaded supertanker at current oil prices, a significant increase that would likely be reflected in higher crude prices. Analysts warned that the move materially raises the risk of further military escalation, especially after a weekend exchange of U.S. and Iranian strikes, including attacks on energy infrastructure. This escalation has largely diminished hopes for a normalization of shipping through Hormuz, which had seen a brief recovery following an interim U.S.-Iran peace agreement. Citi Bank specifically highlighted that Trump's proposal increases the risk of further military conflict, while Saul Kavonic, a senior energy analyst at MST Marquee, suggested oil could hit $100 if the conflict expands.
Roughly one-fifth of global oil supplies pass through the Strait of Hormuz, making any disruption to its transit concerning for international markets. Vessel tracking services have already reported a steep decline in ships transiting the waterway, reversing much of the revival seen after a prior U.S.-Iran memorandum of understanding. The immediate impact means higher oil prices, which typically translate to higher gasoline prices for consumers. The White House has not yet provided details on how the proposed transit charge would be administered or if it had been discussed with U.S. allies in the Gulf.
