- Crude oil futures surged nearly 10% as tensions escalated after Israel’s airstrikes on Iran, raising fears of supply disruptions through the Persian Gulf.
- Around 20 million barrels per day of oil and 11 Bcf/d of LNG transit through the Strait of Hormuz, a crucial chokepoint now under heightened risk.
- Freight rates, especially for tankers, may rebound due to rising costs, increased risk premiums, and potential escalation of the conflict.
Japan’s Mitsui O.S.K. Lines (MOL), one of the largest global ship operators, confirmed issuing safety alerts for its vessels navigating the Persian Gulf. This action follows Israel’s preemptive airstrikes across Iran on June 13, sparking immediate geopolitical concern over the safety of vital energy infrastructure in the region.
Crude Oil Futures Surge on Supply Fears
In response to the strikes, oil markets reacted sharply. Brent crude futures for August delivery surged by $6.75 per barrel (9.73%) to reach $76.11/b as of 11:07 am Singapore time. NYMEX July light sweet crude futures jumped even more, climbing $7.07/b (10.39%) to $75.11/b. The August-September Brent spread also widened notably, pointing to increased market volatility and supply concerns.
Strategic Chokepoint Under Threat
The Strait of Hormuz—linking the Persian Gulf to the Arabian Sea—is a critical passage for global energy supply, with approximately 20 million barrels per day of crude and refined petroleum products and nearly 11 billion cubic feet per day of LNG passing through. The prospect of an Iranian retaliation has prompted fears of shipping disruptions and higher transportation costs, according to industry sources in Seoul and Tokyo.
Freight Market Braces for Potential Rebound
Shipping sources indicate that while crude oil will likely continue to flow, the cost of delivery will increase due to rising insurance premiums and chartering rates. Tanker freight, particularly in the clean segment, has experienced weakness recently due to vessel oversupply. However, the conflict could reverse this trend as risk escalates and demand for secure transport options rises. Market participants expect upward pressure on freight rates if tensions persist or escalate.
Broader Impact on Naphtha and Regional Trade
The Persian Gulf, together with India’s west coast, is the leading global export hub for naphtha, shipping nearly 50 million metric tonnes annually to East Asia. Japan and South Korea, which depend heavily on the region for both naphtha and crude oil, are particularly vulnerable to disruptions. Japan, in particular, sources over 90% of its crude oil imports from the Persian Gulf, underlining the significance of maintaining stability in this maritime corridor.
Geopolitical Escalation and U.S. Response
The U.S. has reportedly begun partial evacuation procedures at its embassy in Iraq, signaling growing concern over regional instability. Any further escalation in conflict between Israel and Iran could trigger broader geopolitical repercussions, with direct implications for global energy markets and maritime security in the region.
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Source: S&P Global
