Oil traders are warning that the market is on the brink of running out of supplies as the Strait of Hormuz has shut down again. This new threat comes after the ceasefire between the U.S. and Iran collapsed, raising fears of a fresh crude oil supply crunch. Unlike previous disruptions, current inventories are too low to help avert a wider economic crisis.
Inventories are significantly tighter than usual, with U.S. commercial crude stocks 6% below the five-year average, gasoline stocks 8% lower, and distillate fuel stocks 11% below average. This situation means the market lacks the buffer that previously mitigated supply shocks. The ongoing conflict has already pushed oil and gas prices higher, with front-month contracts increasing by 0.2% to 0.7%, indicating growing supply concerns and potential volatility for related ETFs.
The International Energy Agency (IEA) has warned that the global economy could suffer if the disruption in the Strait of Hormuz continues for more than a few weeks. IEA Executive Director Fatih Birol emphasized that financial markets are increasingly anxious due to escalating attacks that threaten to disrupt shipments of oil, liquefied natural gas, fertilizers, and other cargo. Commercial shipping through the Strait has sharply declined, with only 14 vessels crossing on a recent Sunday, including four crude tankers, compared to 37 a week earlier. If the Strait remains closed, developing nations, particularly in Asia, will be highly vulnerable.
President Donald Trump's proposal to impose a 20% fee on cargo passing through the Strait would effectively add about $16 per barrel to oil shipped through the waterway. While this levy would increase shipping costs, analysts are more concerned about the heightened risk of physical supply losses due to potential disruptions or a complete shutdown. Citibank warned that implementing this fee could materially increase the risks of military escalation and lead to higher and prolonged oil prices. This would also undermine expectations from the IEA for a comfortably supplied oil market by late 2026, an outlook that was contingent on the gradual recovery of tanker traffic through the Strait.
