During Tuesday's Asian trading session, US crude oil prices trended higher amid escalating tensions around the Strait of Hormuz. Prices are currently trading near $72.45 per barrel, representing an intraday gain of approximately 1.7%. This marks a significant increase compared to pre-conflict levels between the US and Iran.
The Strait of Hormuz, a critical choke point for global energy transportation, handles roughly 20% of worldwide petroleum consumption. As hostilities between the US and Iran intensify, shipping traffic through the strait has sharply declined, with several major shipping companies suspending transit. The waterway is now effectively in a state of de facto closure.
The extreme strategic importance of this passage cannot be overstated. As the key channel linking the Persian Gulf with the Gulf of Oman, it facilitates the daily transit of crude oil equivalent to about 20% of global consumption, along with substantial volumes of liquefied natural gas. Key exporters relying on the route include Saudi Arabia, the United Arab Emirates, Iraq, Kuwait, Qatar, and Iran. Any disruption here directly impacts the global energy supply chain.
With the escalation of military actions by the US and Israel against Iran, the strait has become a focal point. Following the outbreak of conflict over the weekend, transit volumes have plummeted, nearing a standstill. Major shipping firms, including Maersk and Hapag-Lloyd, have halted all voyages through the strait. Reports from the UK Maritime Trade Operations indicate vessels in the area have faced attacks, with navigation systems experiencing severe electronic interference.
While no formal physical blockade is in place, threats from Iran, coupled with drone and missile attacks, have deterred most oil tankers from attempting passage. Arne Lohmann Rasmussen, Chief Analyst at Global Risk Management, stated, "In practical terms, the strait is closed. Ships face attack risks, and obtaining insurance is either impossible or comes with prohibitively high premiums. They have no choice but to wait for the security situation to improve."
Senior Iranian officials have even declared the strait "closed," threatening attacks on any vessel attempting to pass. Although US Central Command maintains the strait is technically open, commercial tanker traffic has collapsed significantly. At least 150 vessels are anchored and waiting, with several tankers reported damaged or on fire.
Due to the spillover risks from US and Israeli strikes on Iran affecting international shipping, multiple marine insurers announced on the 2nd that they will cancel war risk coverage for vessels operating in the Gulf region, effective March 5th. This move is expected to further discourage ship traffic through the area.
Major insurers based in the UK, Norway, the US, and elsewhere stated that war risk insurance for Iranian waters, as well as the Gulf and adjacent waters, will be withdrawn starting March 5th. War risk insurance typically covers losses and damages to shipowners from acts of war and terrorism. The surge in insurance costs will likely lead to a further stagnation of commercial transport in the Gulf region.
Kevin Book, Managing Director at Clearview Energy Partners, warned that infrastructure across the entire region is at risk, not only from deliberate attacks but also from accidental damage, such as debris from intercepted missiles causing facility shutdowns. In a region of highly concentrated global energy production, these multifaceted challenges are significant.
Jim Burkhard, Head of Oil Research at S&P Global, cautioned that if the reduction in tanker traffic persists for one week, it would set a historical record. An interruption lasting longer than a week would constitute an "epoch-making" event for the oil market, causing prices to rise sharply as scarce supply is rationed, with repercussions spreading to financial markets.
If the closure of the Strait of Hormuz extends for several weeks or months, oil prices could surge into triple digits (above $100 per barrel). Analyses from firms like Wood Mackenzie and Bernstein suggest that a 3-4 week restriction could push prices above $100, with extreme scenarios reaching $120-$150. Rasmussen warned, "The consequences would be severe, potentially dragging down the global economy and even triggering a recession. This is an immensely powerful weapon."
Some experts urge caution. Benny Wong, Senior Energy Analyst at PitchBook, noted that ample US inventories and weaker global demand mean a disruption lasting only a few days would have a limited impact on consumers. However, a prolonged closure would create a dual supply shock: current exports would be halted, and OPEC+ spare capacity could not be released through the strait.
There are no large-scale alternative routes to the Strait of Hormuz. Saudi Arabia's East-West pipeline and the Abu Dhabi Crude Oil Pipeline in the UAE have limited capacity, able to handle only a small fraction of the daily flow, insufficient to compensate for the major shortfall. Wong emphasized, "For a volume of this magnitude, there are no meaningful alternatives."
The current situation highlights the vulnerability of global energy supplies. The duration of the conflict will be a key determinant of oil price movements. Markets are closely monitoring the extent of the degradation of Iranian naval capabilities, the progress of US and Israeli actions, and whether broader infrastructure damage occurs. If tensions ease quickly, pressure on oil prices may subside. Conversely, the global energy market faces a severe test, with the potential to trigger rising inflation and recession risks.
As of 11:55 Beijing time, US crude oil continuous contract was reported at $72.42 per barrel.
Comments