Oil prices jumped significantly following renewed tensions in the Strait of Hormuz. International benchmark Brent crude futures for September delivery climbed 3.57% to $86.27, extending gains after a 9.6% rise in the previous session. U.S. West Texas Intermediate futures for August delivery rose 3.2% to $80.64 per barrel. This surge was triggered by President Donald Trump's announcement of plans to impose a 20% fee on all cargo passing through the Strait of Hormuz and to reinstate a blockade of Iranian ports, escalating the conflict with Tehran.
Analysts are concerned not just about the direct cost of the proposed levy, estimated by Lipow Oil Associates to effectively add about $16 a barrel to oil shipped through the strait, but more so about the heightened risk of physical supply disruptions. Henry Hoffman, co-portfolio manager at Catalyst Energy Infrastructure Fund, noted that the immediate impact supports oil prices, but the more critical issue is the risk of renewed physical supply losses. Citi warned that implementing the fee could materially increase the possibility of broader military confrontation, with implications for Iranian engagement with the U.S.-Iran memorandum of understanding.
Vessel traffic through the Strait of Hormuz fell sharply, with Kpler data showing only 14 ships crossing on Sunday, including four crude tankers, compared to 37 a week earlier. This decrease in traffic raises concerns that if storage fills up due to an inability to export crude, producers might be forced to reduce output, leading to greater supply losses than simply damaged infrastructure. The International Energy Agency's (IEA) earlier forecasts of a comfortably supplied global oil market returning to surplus by late 2026 are now in jeopardy, as that outlook depended on a gradual recovery of tanker traffic through the strait.
The timing of these disruptions is particularly challenging given potential shifts in demand. Saudi Aramco recently cut prices by $11 per barrel, moving its primary Asian crude grade to a $1.50 discount versus the Oman/Dubai benchmark, which could encourage Chinese refiners to increase purchases after a previous drop. This means Chinese demand might begin recovering just as the reliability of Middle Eastern supply deteriorates, creating further market instability and potentially pushing prices higher for longer, especially if Iran walks away from the MoU until after the mid-term U.S. elections.
