Iran's Hormuz Reroute Threatens Oil Supply as 20% of Crude Transits

Iran's plan to close temporary Hormuz lanes and route most tankers through its territorial waters threatens to reprice the oil risk premium on a waterway carrying 20 percent of global crude.

Iran will close temporary shipping lanes in the Strait of Hormuz and route most tanker traffic through its territorial waters under an arrangement negotiated solely with Oman, Deputy Foreign Minister Kazem Gharibabadi said Wednesday.

"The arrangements for the Strait of Hormuz should be decided only through consultation between Iran and Oman, and we will not accept any interference from external parties," Gharibabadi said, according to state broadcaster CCTV. He added that the US sent messages to Tehran four to five days after the latest conflict broke out seeking a negotiated resolution.

The new framework will close the temporary lanes now in use and shift a significant portion of vessel routes into Iranian territorial waters, Gharibabadi said. The plan tracks a draft 60-day interim accord, renewable by agreement, under which ships entering the Gulf would take a northern route inside Iranian waters while vessels departing toward the Arabian Sea would use a southern corridor in Omani waters, with navigation exempt from fees during the term. Clearing the central passage of naval mines would begin within 30 days of signing.

The Strait of Hormuz carries about 20 percent of global oil and 25 percent of global LNG, making any rerouting a direct risk to energy prices and shipping costs. The conflict that began in February has already produced thousands of casualties and damage to vital facilities, and the memorandum of understanding signed in June has yet to translate into a permanent reopening.

Washington, which has pressed for full freedom of navigation, disputes key elements of the emerging deal. A US official told the New York Times that Iran's description was "not accurate," insisting no tolls would be collected and Tehran would have no say over which ships traverse the strait or which route they use. President Donald Trump, who canceled a planned military strike over the weekend, has threatened a "strong strike" unless the strait opens immediately, while Secretary of State Marco Rubio welcomed progress in the Omani-mediated talks.

The Governance Dispute Behind the Reroute

The disagreement centers on who controls the corridor. Oman has proposed a joint management model inspired by the Strait of Malacca, where Indonesia, Malaysia, and Singapore coordinate navigation safety while retaining sovereignty over their own waters. Iran rejected the 50-50 division of the shipping lane and instead wants oversight of both inbound and outbound traffic, arguing any future arrangement must safeguard its sovereignty and security. Tehran has framed the proposed charges as service fees for pilotage and navigational assistance rather than transit tolls.

The stakes extend beyond the waterway. Shipping through Hormuz has remained slower than normal after months of disruption, with Kpler data showing six vessels transiting Monday versus seven the previous day, and the UKMTO reporting one cargo vessel struck by an unknown projectile near Oman's coast. The last time the strait faced sustained closure risk, during the 2019 tanker attacks, Brent crude spiked more than 20 percent within weeks as insurers raised war-risk premiums on Gulf shipments.

For markets, the question is whether the interim accord holds. If Iran and Oman finalize the arrangement and the central passage is cleared within 30 days, the immediate supply shock is contained. If the US continues to oppose the fee structure and Tehran proceeds unilaterally, tanker rerouting and higher insurance costs could push crude higher and deepen risk-off positioning across equities and Gulf currencies.

This article is for informational purposes only and does not constitute investment advice.