(Bloomberg) — Oil extended gains as fresh attacks flared in the Middle East and traders weighed a US plan to insure and escort tankers passing through the Strait of Hormuz, with traffic in the vital waterway all but halted.<\/p>\n
Brent rose above $82 a barrel after rallying about 12% over two days, the biggest gain since 2020, while West Texas Intermediate was near $75. President Donald Trump said on Tuesday the US International Development Finance Corporation would offer insurance to vessels to help ensure the flow of energy and other trade, providing a naval escort \u201cif necessary.\u201d<\/p>\n
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The US move follows signs of mounting disruption for producers in the region from the effective closure of the key trade route. Iraq \u2014 the second-biggest OPEC producer \u2014 has begun shutting the Rumaila field, the nation\u2019s biggest, and the West Qurna 2 project, according to people familiar with the matter. When complete, the halts will stop a majority of the country\u2019s output.<\/p>\n
In Saudi Arabia, major oil-storage sites are filling rapidly, according to geospatial analytics company Kayrros.<\/p>\n
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President Donald Trump said the US would provide insurance guarantees and naval escorts to ensure safe passage for oil tankers and other vessels through the Strait of Hormuz. Bloomberg\u2019s Tyler Kendall reports on what\u2019s at stake.Source: Bloomberg <\/p>\n
The global oil market has been pitched into turmoil by the US and Israeli war against Iran, with strikes and counter-strikes spreading across the Middle East. The war has halted trade, driven producers to lock in output, and forced the closure of a major refinery and gas-export plant. Surging prices of crude, gas and petroleum products have raised the specter of a global energy crisis.<\/p>\n
\u201cNaval escorts will be sitting ducks to Iranian attacks,\u201d ING Groep NV said in a note from analysts including Warren Patterson, head of commodities strategy. \u201cSo, the US may choose to wait before escorting vessels until it gauges that Iran\u2019s ability to attack has been degraded.\u201d<\/p>\n
Hostilities continued into the fifth day of the conflict. The Israel Defense Forces said they had begun a \u201cbroad wave of strikes\u201d targeting Iran, while Saudi Arabia\u2019s Ministry of Defense said nine drones and two cruise missiles had been intercepted. Separately, US Central Command reported that it had so far destroyed 17 Iranian ships as well as hundreds of launchers and drones.<\/p>\n
\u201cToday, there\u2019s not a single Iranian ship underway in the Arabian Gulf, Strait of Hormuz or Gulf of Oman, and we will not stop,\u201d Admiral Brad Cooper said in a video posted on X. Vessels destroyed included the \u201cmost operational Iranian submarine, that now has a hole in its side,\u201d Cooper said.<\/p>\n
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As the crisis drags on, oil-market metrics are flashing acute near-term tightness. Brent\u2019s prompt spread \u2014 the difference between its two closest contracts \u2014 has widened to $3.29 a barrel in backwardation, a bullish pattern. A month ago, the gap was just 71 cents.<\/p>\n
The Strait of Hormuz is a narrow waterway that connects the Persian Gulf to the Indian Ocean, with Iran to its north. It\u2019s an essential conduit for the global energy trade, carrying about a fifth of the world\u2019s oil and gas. Since the outbreak of the war last Saturday, tankers have shunned the chokepoint given the mounting risks, including threats from Tehran against vessels.<\/p>\n
\u201cNo matter what, the United States will ensure the FREE FLOW of ENERGY to the WORLD,\u201d Trump posted on social media, without elaborating on the insurance mechanism to be offered. The DFC generally exists to mobilize private capital for developing nations and de-risk investments.<\/p>\n
\u201cThese are words right now, so we need to actually see how this is going to play out,\u201d Rebecca Babin, a senior energy trader at CIBC Private Wealth Group, said on Bloomberg Television. \u201cWhat do those military escorts look like? How expensive is the insurance, and do the shippers feel a degree of comfort with what they they\u2019re being provided?\u201d<\/p>\n
After Trump\u2019s comments, Tehran reiterated a warning to vessels. The Strait of Hormuz is under wartime conditions and ships sailing through it \u201ccould be at risk from missiles or rogue drones,\u201d the Islamic Revolutionary Guard Corps said in a statement. Iran has already struck more than 10 tankers, it added.<\/p>\n
The effective closure of Hormuz presents a huge challenge for oil and gas importers, including Asian economies that are heavily reliant on the flows. Some, including China, have stockpiles that will help to buffer any short-term disruptions, but a sustained conflict threatens to quickly drain those. Alternative supplies from outside of the Middle East will likely be more expensive, with soaring freight rates adding to spiraling costs.<\/p>\n
The \u201cmarket won\u2019t calm down unless it sees proof of traffic resuming toward normalcy,\u201d said Vandana Hari, founder of analysis firm Vanda Insights.<\/p>\n
The International Energy Agency \u2014 the Paris-based agency that coordinates global releases of oil inventories during times of disruption \u2014 convened an unscheduled meeting on Tuesday. It noted that member countries hold more than 1 billion barrels in emergency stockpiles.<\/p>\n
Away from the Middle East, an industry report showed US crude stockpiles rose 5.7 million barrels last week. Official data on the holdings \u2014 which rose almost 16 million barrels in the prior week \u2014 are due later Wednesday.<\/p>\n
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