Oil Prices Surge as Strait of Hormuz Closure Escalates Iran Conflict

Crude oil futures climbed sharply on Friday, with US crude oil futures gaining more than 10%, narrowing the gap with Brent as buyers sought available barrels amid constrained Middle Eastern supply. This surge follows the effective closure of the Strait of Hormuz due to the expanding conflict between the US-Israel and Iran.

Price Increases and Market Reaction

Brent crude futures rose $5.42, or 6.35%, to $90.83 a barrel by early evening. West Texas Intermediate (WTI) crude increased by $7.81, or 9.81%, reaching $88.96. This marks the second consecutive day of larger gains in US crude futures compared to the Brent contract.

Giovanni Staunovo, an analyst with UBS, explained that refiners and trading houses are actively searching for alternative oil sources, with the US, as the largest producer, becoming a key focus. He noted that to prevent a rapid depletion of US inventories through increased exports, the price spread is reverting to reflect transportation costs. Source

Strait of Hormuz Closure and Global Impact

Crude oil is poised for its strongest weekly gain since the volatile period of the COVID-19 pandemic in spring 2020, as the conflict continues to disrupt shipping and energy exports through the vital Strait of Hormuz. The Strait, a critical maritime choke point, has been effectively closed for seven days, blocking approximately 140 million barrels of oil – equivalent to about 1.4 days of global demand – from reaching the market. Source

Qatar’s energy minister anticipates that all Gulf energy producers will halt exports within weeks, potentially driving oil prices to $150 a barrel. Source John Kilduff, a partner at Again Capital, stated that the worst-case scenario is unfolding, and forecasts of $100 a barrel are likely to materialize.

Geopolitical Context and US Response

The oil price rally began after the US and Israel launched strikes on Iran last Saturday, prompting Tehran to halt tanker movement through the Strait of Hormuz. Source The conflict has spread across key energy-producing areas in the Middle East, disrupting output and forcing shutdowns of refineries and liquefied natural gas plants.

US President Donald Trump indicated he was not concerned about rising US gasoline prices linked to the conflict, stating, “if they rise, they rise,” and prioritizing the military operation. Source

US Treasury Measures and Russian Oil

The US Treasury Department is expected to announce measures to combat rising energy prices, although an initial attempt to use the Treasury Department to trade oil futures was reportedly ruled out. Source

The Treasury has granted waivers allowing companies to purchase sanctioned Russian oil stored on tankers to alleviate supply constraints, particularly for refineries in Asia. Ship-tracking firm Kpler estimates approximately 30 million barrels of Russian oil are currently available and loaded on vessels in the Indian Ocean, Arabian Sea region, and Singapore Strait.

Key Takeaways

• Oil prices have surged due to the closure of the Strait of Hormuz amid the US-Israel conflict with Iran.
• Brent crude futures are up 6.35% to $90.83 a barrel, and WTI crude is up 9.81% to $88.96.
• The closure of the Strait of Hormuz has blocked approximately 140 million barrels of oil from reaching the market.
• Qatar anticipates all Gulf energy producers will halt exports within weeks, potentially driving oil prices to $150 a barrel.
• The US Treasury is considering measures to combat rising energy prices.