Oil Prices Surge on Escalating Middle East Tensions
Oil prices surged in July, rising by as much as 22% for Brent and 20% for West Texas Intermediate (WTI), as tensions in the Middle East increased. The price gains were largely driven by escalating hostilities between the US and Iran, which led to a significant increase in the risk premium.
The Strait of Hormuz, through which about 30-35% of global oil exports pass, has been experiencing improved traffic levels after Commonwealth Bank of Australia (CBA) estimates that it had recovered to roughly 14 commodity vessels per day. However, this was disrupted on Friday when Iran's Islamic Revolutionary Guard Corps (IRGC) attacked two tankers transiting the strait under US military escort.
The attacks pushed directly against the recovery, removing six vessels from the flow and raising the insurance and risk calculus for owners considering the route. The market is now pricing a supply chain running at a fraction of capacity, where any single incident reprices the curve due to the lack of spare throughput to absorb it.