Oil Surges Past $75 on Hormuz Risk

The recent surge in oil prices is a direct consequence of escalating military actions in the Middle East, specifically joint US-Israeli airstrikes on Iran which occurred on February 28, 2026. In retaliation, Iran's Islamic Revolutionary Guard Corps (IRGC) has declared the Strait of Hormuz closed to commercial shipping and has threatened to attack any vessel attempting to pass. This is not a formal blockade, but it has created a "de facto closure" as major shipping companies like MSC, Maersk, and Hapag-Lloyd have suspended transits. The resulting uncertainty has caused insurance premiums for passage to skyrocket, making it economically unviable for most operators. Consequently, oil tanker traffic through the strait plummeted by 86% on March 1st compared to the 2026 average. Over 700 non-Iranian tankers are currently waiting on either side of the strait, creating a massive logistical bottleneck. This disruption is particularly critical for Asian economies; in 2024, 84% of crude oil and 83% of liquefied natural gas (LNG) that transited the strait were headed to Asian markets. Key importers include China, India, Japan, and South Korea, who collectively accounted for 69% of all crude oil flows through the strait last year. The impact extends beyond crude oil, affecting a significant portion of the global trade in other energy products. Approximately 16% of the world's trade in oil products, including 32% of seaborne crude oil, transits the strait. The waterway is also crucial for about one-fifth of the global LNG trade, with Qatar being a primary exporter through this route. This is not the first time tensions in the Strait of Hormuz have led to market volatility. Historically, the waterway has been a flashpoint, and any disruption, or even the threat of one, typically adds a significant risk premium to oil prices. Analysts are now forecasting that a prolonged closure could push oil prices to $100 per barrel or even higher. In response to the crisis, some of the largest energy producers in the Middle East have shut down facilities. Qatar has halted its LNG production, and Saudi Arabia has stopped production at its largest domestic refinery. While OPEC+ has agreed to a modest increase in output, there are doubts about whether this will be sufficient to offset the disruption if the strait remains effectively closed. The United States' reliance on oil from the Persian Gulf has decreased in recent years. In 2024, imports through the Strait of Hormuz accounted for only about 7% of total U.S. crude oil imports and 2% of its petroleum liquids consumption. However, the global and interconnected nature of energy markets means that a major supply disruption anywhere has a ripple effect on prices worldwide. Investors are moving towards "safe haven" assets amid the uncertainty, which explains the concurrent rise in gold and silver prices. The IRGC has stated that the strait is under their "complete control," and has warned that any vessel attempting to transit could be targeted by missiles or drones, further intensifying the risk for any maritime traffic in the region.