Ship Traffic Through Strait of Hormuz Drops Sharply After Attacks Between US and Iran

Oil Price Rises to Highest Level Since June

The impact on the oil market was not long in coming. In Asian trading on Monday at 03:00 CEST, a barrel of North Sea Brent for delivery in September traded at 90.50 US dollars (79.16 euros) – an increase of 2.72 percent. At times the price even exceeded the 91 dollar per barrel mark, reaching the highest level since June. West Texas Intermediate, the key US crude grade, gained 2.39 percent to 84.46 dollars.

The background is an intensification of tensions between Washington and Tehran. Following new US attacks on Iran, the Iranian Revolutionary Guard threatened retaliation. It declared that, as long as "US aggression in the region continues," the strait would be safe "neither for the transport of petrochemical products nor for 'a single drop of oil and gas.'" The words were spoken in an official statement by the Revolutionary Guard, thereby indirectly hinting at a blockade of the strait.

Iran Threatens and Blows Up Tankers

At the same time, the US stepped up its military presence in the region. The US government declared it was enforcing a naval blockade off Iranian ports. The British organization UKMTO, which monitors ship movements, also reported a fire on a ship near Oman in the strait during the night of Monday. The cause of the fire was initially unclear.

Already over the weekend, the Iranian Revolutionary Guard had reported that two oil tankers had been blown up on the southern route. According to this, Iran is taking action against ships that, in its view, violate applicable rules in the strait. UKMTO warned ships to pass through the region only with caution.

Global Economic Significance of the Strait

The economic consequences for the global energy market are immediately palpable. Around one fifth of the oil traded worldwide is normally transported through the Strait of Hormuz. Since currently hardly any ships are passing through the strait, liquefied natural gas (LNG) is piling up on waiting tankers. According to S&P Global, LNG tankers with a total capacity of nearly 1.9 million tonnes are currently in the region. In mid-July, seven loaded Qatari LNG tankers were estimated to carry around 570,000 tonnes of LNG on board.

Analysts at S&P Global, however, view the situation in a nuanced way. LNG production in Qatar and the United Arab Emirates has remained relatively stable despite the disruptions. Should the de facto blockade of the strait ease in the coming weeks, the waiting ships could enable a rapid rise in exports, according to the experts. This would put the market at least partly in a position to quickly make up for the lost transport.

Outlook for Possible De-escalation

The current development highlights the vulnerability of global supply chains. Since a substantial share of international oil and gas business is handled via the strait between the Persian Gulf and the Gulf of Oman, conflicts in the region have a direct impact on energy prices and security of supply worldwide. Governments and companies are therefore watching the situation closely, especially as further escalation could add to the pressure on markets.

Market participants point out that the price movements on Monday are attributable above all to military events and not to fundamental supply data. Should the situation calm down, the price premium could, in observers' assessment, be gradually built down again. The prerequisite for this, however, would be that ship traffic through the strait normalizes and the Iranian blockade threat is not implemented in full.