Oil surges past $90 as US strikes Iran near Hormuz chokepoint

Oil surges past $90 as US strikes Iran near Hormuz chokepoint

Oil prices climbed sharply in early Asian trading Monday after US forces struck Iranian missile launchers on Larak Island near the Strait of Hormuz and Iran launched retaliatory missiles at a US military base in Jordan, intensifying concerns that conflict could disrupt crude flows through a waterway that handles approximately 20 million barrels per day—roughly one-fifth of global petroleum consumption and a quarter of all seaborne oil trade.

At approximately 9:20 am Tokyo time, Brent crude traded at $89.45 per barrel, up $1.35 or 1.53%, after earlier climbing above the psychologically important $90 level to reach $90.32. US West Texas Intermediate rose $1.17 to $84.57, a gain of 1.40%, while Murban crude, the United Arab Emirates' flagship export grade, surged $3.72 to $95.75 per barrel, representing a 4.04% increase.

Strategic strike location heightens market anxiety

The US military said it targeted two Iranian launchers that were allegedly preparing to deploy mines into the Strait of Hormuz. The attack marked the first known US strike on Iran since late July and took place on Larak Island, which sits at the narrowest point of the strait—approximately 39 kilometers wide—between the Iranian island and Oman's Great Quoin Island.

The immediate market concern extends beyond whether Iran might formally close the waterway. Traders are assessing whether insurers, tanker operators and energy companies will judge the route too risky to use. War risk insurance premiums for vessels transiting the strait have already surged from approximately 0.25% of hull value before the conflict to between 7.5% and 10% currently, making commercial transits prohibitively expensive even without a formal blockade.

Ship operators have reportedly reduced transits because of mounting threats and security risks. Even a partial slowdown could tighten global supplies and push up freight, fuel and petroleum product prices, particularly across Asian markets that depend heavily on the waterway. About 84% of crude oil and condensate shipped through the Strait of Hormuz is destined for Asia, with China, India, Japan and South Korea collectively receiving approximately 69% of all Hormuz crude flows.

Murban premium reflects Gulf supply risk

Murban crude posted the sharpest gain among major benchmarks, rising more than 4%. The light sweet crude oil, produced by ADNOC in Abu Dhabi with an API gravity of approximately 39-40 degrees and sulfur content around 0.7-0.8%, is a premium-quality benchmark with export volumes of approximately 1.1 million barrels per day.

The divergence between Murban and international benchmarks reflects the market's heightened sensitivity to Gulf supply and shipping risks. Gulf producers depend heavily on maritime routes, and any escalation around the Strait of Hormuz could affect crude exports, refined products and liquefied natural gas cargoes.

Approximately 19-20% of global LNG trade transits through the strait, with about 93% of Qatar's and 96% of the UAE's LNG exports passing through the waterway. Few LNG and oil vessels are currently willing to risk the passage, according to reports, leaving the market vulnerable to further sharp price movements if attacks expand.

Limited alternatives constrain mitigation options

Despite the spike, the market remains below the extreme levels that would normally signal a full supply shutdown. Only Saudi Arabia and the UAE have operating crude oil pipelines that can bypass the Strait of Hormuz, with an estimated 3.5 to 5.5 million barrels per day of pipeline capacity available to redirect crude flows around the strait. Saudi Arabia accounts for approximately 38% of all crude and condensate flows through Hormuz, moving about 5.5 million barrels per day through the waterway.

Traders are watching whether the US strike leads to further military action or remains an isolated operation. Oil prices have been volatile this month, with Brent futures swinging through a range of nearly $17 per barrel as markets reacted to shifting expectations over the conflict and possible diplomatic efforts.

The risk is that a prolonged disruption in the Gulf could eventually affect LNG shipping as well as oil, compounding supply pressures and triggering another wave of price increases across energy markets.