Oil Prices Exceed $84 Amid Near-Complete Closure of Strait of Hormuz

SadaNews - Oil prices extended their gains as the war waged by the United States and Israel against Iran disrupted oil supplies to major importers, with the warring parties vowing to continue the conflict, and China, the largest crude importer in the world, seeking to secure fuel.

Brent crude rose toward $85 per barrel, after increasing 12% during the first three days of the week, while West Texas Intermediate crude traded near $78.

U.S. President Donald Trump expressed confidence in the military campaign, even as the timeline for operations remained unclear. In contrast, the Iranian Revolutionary Guard pledged to intensify and expand strikes in the coming days.

In a sign of escalating complexities, the Chinese government directed major refining companies to halt diesel and gasoline exports. The restrictions reflect efforts to prioritize domestic needs as the conflict worsens. Earlier in the week, a major Indian refining company informed its clients that it would suspend product exports. Japanese refiners are also urging their government to draw from strategic oil reserves.

The Strait of Hormuz at the Center of Concerns

The main concern in the market remains the Strait of Hormuz, where traffic through the waterway, including oil and gas tankers, has nearly completely halted. The effective closure of this passage has disrupted oil supplies from Iran, as well as from other Gulf countries, forcing some to begin reducing production.

Global energy markets have faced severe disruptions due to the war, which has entered its sixth day with no immediate prospects for resolution. The conflict has spread throughout the Middle East, pushing up prices of oil, gas, and petroleum products, driving shipping rates higher, and causing an increasing wave of turmoil for producers, as well as for importing countries that rely on energy flows from the region.

Analysts at JPMorgan Chase, including Natasha Kaniva, wrote in a memo that "supply reductions driven by the filling of storage facilities in the Middle East have begun."

They added: "The main question now is how quickly production will return once export routes normalize. We estimate that most fields can resume production within days, with full capacity typically restored within two to three weeks."

Security Incidents and Plans to Secure Navigation

In waters off the coast of Kuwait, the captain of a tanker that was moored reported seeing and hearing a large explosion on the left side of the ship, followed by a small boat leaving the area, according to the UK Maritime Trade Operations Center. The center added that the ship took on water, but the crew is fine.

In an attempt to break the deadlock in the Strait of Hormuz, which links the Gulf to the Indian Ocean, Washington has proposed a plan to provide security guarantees for ships, and possibly naval escorts. Marsh, the world's largest insurance broker, stated that arranging such a move might take weeks.

Data on ship tracking compiled by Bloomberg show that traffic through the strait has declined by more than 95%, with supertankers and LNG carriers avoiding this route. The few ships still moving are leaving the Gulf while turning off their tracking devices, a common practice in conflict zones.

Global Implications and Diplomatic Moves

About 15 million barrels of oil pass through the strait daily in 2025, along with about 5 million barrels of petroleum products, according to the International Energy Agency based in Paris, which advises major economies.

The agency's study on its website states that "the massive volume of oil exported through the Strait of Hormuz and the limited options for bypassing it means that any disruption in flows will have significant consequences for global oil markets."

In a sign of the crisis's impact, Mangalore Refinery and Petrochemicals in India has informed its customers that it will suspend petroleum product exports because it may not be able to receive crude oil shipments. The state-owned company operates a refinery with a capacity of 300,000 barrels per day in the southern Karnataka state.

China's Concern Over the Crisis

In a related context, China, the world's largest oil importer, stated that it will send its special envoy for Middle Eastern affairs to the region for mediation efforts. Although the details of the envoy's mission have not been disclosed, the move reflects Beijing's concern over access to crude oil supplies.

For his part, David Solomon, CEO of Goldman Sachs, stated in an interview with Bloomberg TV in Sydney that there is "a great deal of uncertainty" regarding the trajectory of the conflict in the Middle East and how it will be resolved. He added that investors are trying to understand how events will unfold.

The spot price spread for Brent crude, which is the difference between the closest two delivery contracts, widened to $3.86 per barrel in a backwardation pattern, indicating tight supplies in the near term. A month ago, the spread was only 57 cents. Along the curve of contracts, prices appear much lower for the coming months, with the October contract trading about $11 less than the May contract.

Priyanka Sachdeva, senior market analyst at brokerage Phillip Nova, stated that "if we see one more successful strike on an oil tanker or energy infrastructure, or continued disruptions, prices could spike sharply again."

In the United States, crude oil inventories nationwide rose by about 3.5 million barrels last week, reaching the highest level since May, according to the U.S. Energy Information Administration.

In the latest trading, the price of Brent crude for May futures contracts rose by 3.4% to $84.52 per barrel at 1:50 PM in Singapore, after reaching $85.12 per barrel on Tuesday, marking the highest trading level since July 2024. West Texas Intermediate futures climbed 4.3% to $77.85 per barrel.