Oil Hits $77 on Iran Tensions

The Strait of Hormuz, a critical chokepoint between Oman and Iran, handles about 20% of the world's total oil consumption, with flows averaging around 20 million barrels per day in 2024. Any disruption in this narrow waterway can lead to significant delays in global oil supply and increased shipping costs. Following recent joint U.S. and Israeli strikes on Iran, tanker traffic through the strait has plummeted. On March 1, shipments dropped by 86% compared to the 2026 average, with only three tankers transiting. Over 700 non-Iranian tankers are now waiting on either side of the strait as operators suspend crossings due to soaring insurance costs. This isn't the first time the strait has been a flashpoint. During the Iran-Iraq War in the 1980s, both sides attacked shipping, and the U.S. Navy escorted tankers. More recently, a series of unclaimed attacks on tankers in 2019 and ship seizures by Iran have heightened regional tensions. The vast majority of crude oil passing through the strait is destined for Asia. In the first quarter of 2025, China was the largest destination, receiving over a third of the volume, followed by India, South Korea, and Japan. Asian nations collectively receive nearly 90% of the crude oil and condensate that transits the waterway. In response to the escalating crisis, a coalition of eight OPEC+ countries, including Saudi Arabia and Russia, agreed on March 1st to increase their collective production ceiling by 206,000 barrels per day starting in April. This move is part of a gradual plan to unwind previous production cuts. The current price surge has widened the spread between Brent crude, the international benchmark, and U.S. West Texas Intermediate (WTI). The premium for Brent has reached its highest level in over two years, reflecting greater market concern about global supply disruptions compared to U.S. supply, where inventories have been rising.