Iran’s Strategic Move in Hormuz Could Shock Oil Markets

Iran’s Strategic Approach to the Strait of Hormuz

Iran is reportedly implementing a new “calibrated strategy” concerning the critical Strait of Hormuz, allowing only specific vessels to pass through this vital waterway. Analysts warn that global oil markets may not be fully aware of the potential risks associated with this approach, which could lead to further supply shortages.

According to Matt Smith, the U.S. head analyst at Kpler, Iranian crude tankers continue to traverse the maritime chokepoint, along with a limited number of other vessels that Iran has permitted to pass. MarineTraffic, operated by Kpler, noted in a post on X that Iran appears to be pursuing a strategy of “selective vessel passage” to send “strategic signaling,” rather than causing a complete disruption of global crude supply through the strait.

An animated map showing sparse maritime traffic through the waterway was included in the post. Data from MarineTraffic indicated that nine vessels have crossed since Monday.

Financial Implications and Market Reactions

Several news reports suggest that Iran has begun charging vessels up to $2 million to pass through the strait. However, Smith stated that Kpler could not confirm these reports about tolls. Meanwhile, HormuzTracker, which provides a dashboard for tracking shipping disruptions in the Strait of Hormuz, showed that approximately 2,500 vessels are still trapped inside the Persian Gulf, with 400 waiting outside the strait.

Smith remarked that the biggest surprise is that the Strait of Hormuz remains largely closed, despite the ongoing conflict. He warned that the world is still underestimating the impending supply shortages and higher fuel prices that will result.

Economic Impact and Energy Prices

Currently, nearly 16 million barrels of oil per day are effectively sidelined from the global market, with passage through the strait largely frozen, according to a note from J.P. Morgan strategists. They estimate that this shortfall could reach 10 million barrels per day by April.

The average U.S. price for regular gasoline at the pump rose nearly 7% over the past week, according to GasBuddy data. American drivers experienced a brief reprieve from rising fuel costs when crude-oil prices fell by more than 10% on Monday. However, oil prices rebounded significantly on Tuesday following reports that the Pentagon plans to deploy an airborne Army unit to the Middle East.

White House spokeswoman Anna Kelly mentioned that all announcements regarding troop deployments will come from the Department of War, referring to the unofficial name the Pentagon has revived for the Defense Department.

Market Volatility and Geopolitical Uncertainty

On Tuesday, U.S. benchmark West Texas Intermediate crude for May delivery climbed 4.8% to settle at $92.35 a barrel on the New York Mercantile Exchange. Despite this increase, oil futures eased in extended trade after Israeli news reports indicated that plans for a 30-day cease-fire were being considered.

Stephen Innes, managing partner at SPI Asset Management, highlighted that the conflict involving Iran and the Strait of Hormuz does not have a clear historical precedent. He emphasized that there is no clean analog for a disruption of this scale through such a strategically vital artery, given the involvement of multiple state actors, military uncertainty, and global energy infrastructure.

The Role of Time in the Oil Crisis

Innes noted that the biggest variable in this situation is time. The duration of the current oil shock remains “unknowable with any precision.” While the market can estimate how much oil can be rerouted or replaced, it also must account for the limits of releases from strategic petroleum reserves, spare production capacity, freight constraints, and refinery substitution.

This could help reduce the global oil market’s supply shortfall from the current 16 million barrels per day to 10 million barrels per day by April, as suggested by Innes, citing a bar chart from J.P. Morgan’s recent note.

He added that while policymakers may be able to cushion the blow, they cannot eliminate physical bottlenecks. Thus, even though the timeline of the conflict is uncertain, the arithmetic of the oil market remains clear, and “barrel math sets the price.”

As of Tuesday, WTI oil prices have increased nearly 38% month to date, while global benchmark Brent crude has gained 44% over the same period.