The Strait of Hormuz is experiencing a severe disruption in oil and LNG traffic due to renewed hostilities between the U.S. and Iran, following the collapse of a truce reached last month. This vital chokepoint, which typically handles about 20% of the world’s oil traffic, has seen tanker crossings dwindle significantly, with just six crude and condensate tankers crossing between July 12-16 and none since July 14, according to Kpler data. This marks a sharp decline from the average of three to four tankers per day in the preceding week and a significant drop from the 10 million barrels per day that transited after a short-lived agreement in mid-June. The immediate impact on tanker traffic underscores the fragility of the region's energy flows.
The renewed conflict has led to a noticeable surge in oil prices. Brent crude futures jumped approximately 2% to trade at $86.03 per barrel, while U.S. West Texas Intermediate futures gained 2.6% to reach $80.99. Both benchmarks have climbed nearly 13% this week alone. This price increase reflects investor concerns over the escalating geopolitical tensions. Kuwait reported an Iranian attack on one of its power and water desalination plants, and the U.S. Central Command confirmed a sixth consecutive night of strikes against Iranian military targets. Iran, in turn, has retaliated with attacks on U.S. bases in Kuwait and Jordan, further intensifying the situation.
Analysts are expressing increasing worry about the situation's long-term implications. Jorge León, Senior Vice President at Rystad Energy, noted that while a limited agreement remains the base case, confidence in such an outcome has weakened. The U.S. has reimposed a blockade on Iranian ports and ended a waiver on oil sanctions, while Iran has indicated it no longer feels bound by the earlier interim deal. There are also reports that Iran has asked Yemen’s Houthis to prepare to close the Red Sea oil route if the U.S. targets substantial Iranian power infrastructure, which would further exacerbate global energy supply issues. Despite these escalating tensions, León suggested that both sides still have economic incentives to avoid a complete breakdown, with the U.S. seeking lower oil prices ahead of midterm elections and Iran reluctant to forgo economic benefits.
The International Energy Agency’s Executive Director, Fatih Birol, emphasized that oil security remains a critical issue and voiced concern if the situation does not improve within weeks. The prospect of hostilities spreading to the Red Sea, potentially blocking the Strait of Bab al-Mandab, could lead to further significant increases in oil prices. Commerzbank analysts noted that transit through the Red Sea had already increased due to Saudi oil exports being rerouted away from Hormuz. The current disruptions signify a severe challenge to global energy markets, particularly given diminished global inventories, as the world struggles to cope with the indefinite closure of the Strait of Hormuz to significant oil traffic.
