President Donald Trump's proposed 20% fee on cargo passing through the strategically vital Strait of Hormuz has intensified concerns about oil supply disruptions, making earlier forecasts of a global oil surplus uncertain. This potential levy, estimated to add about $16 per barrel to crude shipped through the strait, coupled with rising military tensions between the U.S. and Iran, is pushing Asian buyers to seek alternatives to Middle Eastern oil.
The heightened risks are reflected in oil prices, with U.S. West Texas Intermediate futures for August delivery rising 2.27% to $79.91 per barrel, and international benchmark Brent crude futures for September delivery climbing 2.14% to $85.11, extending significant gains from the previous session. These increases follow a 9.6% surge in Brent crude and a 9.4% jump in WTI futures recently, reaching their highest levels in nearly a month. Analysts, like Henry Hoffman of Catalyst Energy Infrastructure Fund, warn that potential supply losses could be much greater if storage fills up due to inability to export, forcing producers to cut output.
Despite Saudi Aramco cutting prices for its primary Asian crude grade to a $1.50 discount versus the Oman/Dubai benchmark, encouraging Chinese refiners to increase purchases after a drop in imports, the overall sentiment indicates a shift away from the region. The U.S. has also reimposed its naval blockade on Iran, and military actions, including missile attacks on UAE tankers in Omani waters, have further disrupted the U.S.-Iran memorandum of understanding aimed at reopening the strait. Vessel traffic through the Strait of Hormuz sharply declined, with only 14 ships crossing on a recent Sunday, including four crude tankers, compared to 37 a week earlier.
Financial institutions like Citi have warned that implementing the fee could significantly raise the risk of a broader military confrontation, potentially leading to prolonged higher oil prices if Iran walks away from the MoU. The escalating tensions and the proposed toll reinforce the unreliability of Middle Eastern supply just as Asian demand, particularly from China, might be recovering. This scenario drives Asian oil buyers to look towards more stable sources, such as U.S. crude, undermining expectations from the International Energy Agency for a comfortably supplied market in the near future.
