Oil Markets Bracing for Prolonged Squeeze as Hormuz Blockage Deepens

The ongoing conflict involving Iran is severely impacting global oil markets, leading to a significant supply shock. Crude prices have surged due to escalating geopolitical tensions after an attack on Saudi oil tankers in the Red Sea, forcing cargoes destined for Europe to take a longer route around South Africa.

Vijay Valecha, Chief Investment Officer at Century Financial, noted that markets are not yet fully pricing the risk. He cited JP Morgan estimates, which indicate global oil supply has fallen by 11.1 million barrels a day since the conflict began, while demand has dropped 5.1 million barrels a day due to weaker Chinese crude imports and petrochemical activity.

Gulf exports have plummeted by 82% between January and June, with traffic through the Strait of Hormuz effectively ceasing after US-Israel strikes on Iran in February. Large crude carrier movements only partially recovered to roughly 4.4 vessels per day by early July, with Suezmax outbound transits at zero.