Tensions across the Middle East have escalatd rapidly since a Feb. 28 strike on Iran by the US and Israel followed by Iranian retaliation. The market narrative has shifted from a geopolitical 'risk premium' driven by sentiment to a tangible 'supply chain premium,' with the navigability of the Strait of Hormuz emerging as the key pricing variable.
On Tuesday, Mar. 3, Brent crude futures climbed 7%, briefly reaching $85/bbl, their highest level since July 2024. US West Texas Intermediate (WTI) rallied to an intraday peak of $77/bbl, marking its strongest level since June. Brent’s premium to WTI has widened, underscoring the elevated geopolitical risk and higher logistical costs associated with globally traded, seaborne crude.
Since Israel’s initial strikes over the weekend, military operations have broadened, while Iran has reportedly responded by targeting Gulf energy infrastructure and oil tankers transiting the Strait of Hormuz. The escalation has intensified concerns over potential disruptions to Middle Eastern oil and gas flows.
Strait of Hormuz
The Strait of Hormuz is the only maritime outlet for oil and LNG exports from the Persian Gulf. In 2025, roughly 15 million b/d of crude oil, about 30% of global seaborne crude trade, transited the strait. In addition, about 5 million b/d of refined products moved through the corridor, including LPG, gasoline, diesel and fuel oi, while about 20% of global LNG trade also depends on this route.
Around 80% of crude shipments through Hormuz are destined for Asian markets, including China, India, Japan, and South Korea. As a result, any sustained disruption would ripple beyond crude oil, spreading across LNG, refined products, petrochemical feedstocks, and broader supply chains.
The immediate market concern is no longer confined to military strikes but centers on logistical paralysis. War-risk insurance premiums have surged, insurers have reportedly withdrawn coverage for vessels transiting the strait, and freight rates have climbed sharply. Tankers and container ships are increasingly avoiding the waterway.
According to vessel-tracking data from Kpler, tanker speeds near Hormuz have dropped to near zero, with transit volumes approaching minimal levels. Some vessels are reportedly waiting in the Arabian Sea or outside the Gulf pending clarity on the security situation. Self-imposed shipping halts, combined with insurance cancellations, have effectively transformed geopolitical risk into an immediate supply constraint.
Expanding infrastructure risks
Analysts at ING note that while the threat to tanker traffic is significant, a larger risk to markets would be a broader expansion of attacks on regional energy infrastructure, potentially leading to prolonged production outages.
Several countries in the region have already experienced disruptions or precautionary shutdowns. Qatar has suspended portions of LNG production, Israel has halted output at some gas fields, Saudi Arabia has reportedly closed its largest refinery, and oil production in Iraq’s Kurdistan region has nearly ceased.
LNG, HSFO
Natural gas markets have reacted sharply. Dutch TTF benchmark prices, UK gas contracts, and LNG spot prices in both Europe and Asia have risen significantly.
Europe remains particularly vulnerable. Gas storage levels are historically low, with inventories below 30% capacity. Following reduced Russian pipeline supplies, Europe has become increasingly reliant on LNG imports from the US and Qatar, heightening sensitivity to Hormuz-related disruptions. At the same time, refinery closures in recent years have increased Europe’s dependence on Middle Eastern diesel and jet fuel, further amplifying exposure to shipping risks.
Among petroleum products, high-sulfur fuel oil (HSFO) faces elevated exposure. Iran is a major regional supplier of fuel oil, with average 2025 monthly HSFO shipments estimated at about 1.17 million metric tons. Across the broader Persian Gulf, HSFO shipments average roughly 3.38 million metric tons, with cargoes flowing to the UAE, China, Malaysia, Indonesia, and Singapore. Should Hormuz disruptions persist, the HSFO balance could tighten materially, especially for the Asia market.
