Key Takeaways: A chemical tanker was struck off Oman's coast, the latest escalation in a widening confrontation over the Strait of Hormuz that has driven Brent crude above $85 a barrel.
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Oil tanker attack near Oman pushes Brent above $85 as Hormuz crisis deepens
The attack on the Stolt Magnesium near Al Sharqiyah sent Brent crude futures up 9.6% to $83.30 Monday, extending gains above $85 Tuesday as the US reinstated a naval blockade covering Iran's entire coastline.
"The focus will remain on the number of inbound tankers as a lower number could impact production, so currently we see a risk premium and a disruption risk supporting prices," Giovanni Staunovo, an analyst at UBS, said.
West Texas Intermediate settled up 9.4% at $78.14 a barrel, the largest single-day dollar gain since April 29. The US 10-year Treasury yield rose seven basis points to 4.63% while gold climbed 0.5% to $4,021 an ounce. The S&P 500 fell 0.79% and the Nasdaq Composite dropped 1.55%.
The Strait of Hormuz handles about one-fifth of global daily oil and liquefied natural gas supplies. With the blockade reinstated and Iran vowing to confront any unauthorized transit, the risk of a prolonged supply disruption threatens to keep energy prices elevated and complicate central bank efforts to contain inflation.
President Donald Trump said the blockade would take effect at 8pm GMT Tuesday and cover all vessels regardless of flag, while a 20% transit fee would be imposed on cargo shipped through the waterway. The UN's shipping agency pushed back, saying there is no legal basis for introducing mandatory tolls on strait transits.
Iran's Khatam al-Anbiya Central Headquarters, the armed forces unit overseeing military operations, said it would not allow Washington to intervene in the strait. Iranian Foreign Ministry spokesperson Esmail Baghaei said negotiations between the US and Iran had entered a crisis period.
The UAE Defense Ministry said two UAE-owned tankers in the southern corridor of the strait were targeted by Iranian cruise missiles, killing one crew member and injuring eight others. The Oman Maritime Security Center reported that the Stolt Magnesium attack caused a fire in the vessel's engine room.
Supply disruption risks ripple across markets
Brent crude rose above $85 a barrel Tuesday for the first time since June 12, trading 1.6% higher at $84.20 by morning. The rally strengthened expectations that the Federal Reserve could keep interest rates higher for longer, with the yield on the 10-year Treasury note little changed at 4.64%.
The US Dollar Index edged down 0.1% to 101.2 after falling 2.6% on Monday. Gold rose to $4,021 an ounce as investors sought safe havens.
US stocks closed lower Monday, with semiconductor shares leading losses. Micron Technology fell 4.3%, SanDisk lost 12.6%, AMD declined 4.2%, and Intel dropped 6.1%. The Dow Jones Industrial Average fell 0.26%.
European markets ended higher Monday despite the tensions, supported by gains in telecommunications and energy shares. The UK's two-year government bond yield rose 13 basis points to 4.34% as markets continued to expect the Bank of England to raise rates later this year.
Asian markets traded lower Tuesday. Japan's Nikkei 225 fell 0.1%, South Korea's Kospi declined 0.4%, China's Shanghai Composite lost 0.7%, and Hong Kong's Hang Seng Index dropped 0.5%.
Pipeline bypass capacity offers long-term hedge
Goldman Sachs estimated that expanding pipeline capacity in the Middle East could shield more than 60% of pre-war Gulf oil exports from future Hormuz disruptions by end-2028. The bank's base-case forecast assumes pipeline capacity bypassing the strait will rise by 3.8 million barrels per day by end-2027 and 7.3 million bpd cumulatively by end-2028, taking total effective bypass capacity to more than 14 million bpd.
The last time the Strait of Hormuz faced a sustained blockade threat, during the 2019 tanker attacks, Brent crude spiked about 15% over two weeks before stabilizing as diplomatic channels reopened. The current escalation involves a broader blockade and direct military exchanges, suggesting a more protracted disruption.
US crude oil inventories in the Strategic Petroleum Reserve fell by about three million barrels to 316.5 million barrels last week, the lowest level since April 1983, as part of an agreement to release 172 million barrels from the facility.
This article is for informational purposes only and does not constitute investment advice.
[1] Oman Maritime Security Center: Oil tanker "Stolt Magnesium" attacked near Al Sharqiyah[2] Iran war live: Trump reverses 20-percent Hormuz tariff announcement[3] Trump's Hormuz toll plans bring oil supply risks back in spotlight[4] Markets trade negative as Middle East tensions threaten global energy supply[5] Oil up 9% to one-month high as US says it will blockade entire Iranian coastline, all vessels
