Oil Flow Through the Strait of Hormuz Has Dropped Sharply
Before this past weekend's strikes, about 15 million barrels of oil moved through the Strait of Hormuz. That figure has now fallen to roughly 10 million barrels. Much of what still moves goes through pipelines and ship-to-ship transfers - any way to get the oil out without being clearly seen. Many tankers crossing the strait now turn off their transponders so they pass through untracked, because Iran does not want the movements visible.
Tanker traffic tells the same story. Before the strikes, about 15 tankers were making it through. After the strikes, which happened just over 24 hours ago, that number is closer to seven or lower, and probably even less now. This is far below the weekly average seen through August.
Is the Strait Open or Closed?
It is not closed. Officials in Washington say oil is moving. What is really happening is that ship owners are less willing to take the risk. They would prefer alternative routes, but 400 to 500 ships are still stuck inside the strait. That is down a lot from the start of the conflict, but each stuck ship on Gulf-to-China routes is costing $500,000 a day. Buyers in Asia are paying that cost right now, and it is pushing shipping companies to pull back on where they will go.
The Iran-Oman Alternative Corridor
An alternative corridor discussed by Iran and Oman looked fairly realistic before the weekend strikes. Iran has since pulled back on the idea. Iran now says it will not reopen the strait until it gets reassurances or gets the US to meet its demands: remove the blockade, pay damages, and give Iran more control over the strait. The corridor is now less likely than it was before the weekend, though the door is not fully shut.
Insurance and War Risk Premiums
Costs are rising, including insurance on vessels carrying the barrels. The war risk premium is up sharply, sitting around 8.5%. These premiums normally run between 5% and 10%, so the current level is near the upper end for this kind of conflict. That feeds straight into higher prices at the pump, especially in Asia. Delivery is harder and much more expensive everywhere the oil goes.
Container and LNG Traffic Returning to Suez
Container ships and LNG traffic are starting to return to the Suez route, which is encouraging. Tankers remain cautious there because the Houthis have selectively slowed tanker progress through the area. About 30% of traffic has now shifted back to Suez from the route around the Cape of Good Hope, which adds about two weeks to the trip. Crude is slower to make this switch, but getting LNG and container ships back through is a positive sign.
Price Outlook and What to Watch
Oil prices are elevated: WTI sits above $86 a barrel, Brent crude above $90 a barrel, up more than 3%. Expect a very volatile stretch. The biggest point is that two major choke points are under pressure at the same time - the Suez Canal and the Strait of Hormuz. Both have had problems before, but both being at risk together adds a layer that makes traders hesitant to jump in. This creates a lasting risk premium in crude, while freight and insurance costs add more on top of the delivered price.
Traders are reacting to headlines out of Iran and Washington as much as to the actual number of barrels moving through either choke point. The two things to watch most closely: whether the Iran-Oman corridor gets activated - less certain than before the weekend - and whether Washington responds with more sanctions or other measures. Either could move the market quickly in either direction.
