Oil prices rose significantly on Tuesday, driven by concerns of supply disruptions in the Strait of Hormuz. International benchmark Brent crude futures for September delivery climbed 3.57% to $86.27 per barrel, extending a 9.6% gain from the previous session. U.S. West Texas Intermediate (WTI) futures for August delivery also soared 3.2% to $80.64 per barrel. This spike followed former President Donald Trump's announcement of plans to impose a 20% shipping fee on cargo transiting the Strait and to reinstate a blockade of Iranian ports.
Trump's proposal, which would levy fees on ships at a rate of 20% on all cargo shipped, is estimated by Lipow Oil Associates to add approximately $16 per barrel to the cost of crude oil transported through the Strait. This fee on supertankers, which can hold about 2 million barrels, translates to roughly $39 million per vessel. The move signals a heightened risk of disruptions to shipping and potential supply shortages, challenging earlier forecasts of a global oil surplus.
Analysts from Citi warned that Trump’s plan materially increases the risk of military escalation and could lead to higher oil prices for an extended period, especially if Iran disengages from existing agreements. The Strait of Hormuz, a crucial choke point, historically handles about one-fifth of global oil supplies. Shipping traffic in the Strait had begun to recover after earlier disruptions but fell sharply following these new developments, with only 14 ships, including four crude tankers, crossing on Sunday compared to 37 a week prior. This reduction in vessel traffic could force producers to cut output if storage fills up due to an inability to export crude.
The rising oil prices and geopolitical tensions also impacted broader financial markets. Asian stocks dropped, and Wall Street saw a sell-off. Concerns grew that persistently high oil prices could prompt the U.S. Federal Reserve to raise interest rates further, adding to market uncertainty. Experts believe the immediate impact is supportive of oil prices, but the more significant concern is the risk of renewed physical supply losses, especially if the Strait were to shut down completely, jeopardizing anticipated global oil surpluses.
