President Trump said the U.S. will reinstate its naval blockade of the Strait of Hormuz and charge a 20% fee on cargo passing through, ending weeks of fragile calm. Oil jumped, with Brent reaching $79.46 a barrel and West Texas Intermediate hitting $74.67 as traders repriced the risk to a waterway that had only just reopened.
President Donald Trump said Monday that the U.S. naval blockade of the Strait of Hormuz will be reinstated after a weekend of strikes by both the U.S. and Iran. He also said all non-Iranian ships crossing the strait must reimburse the U.S. at a rate of 20% for their cargo, without specifying how the charge would be calculated.
Oil prices climb on the announcement
The news pushed crude, already up more than 3% before the announcement, up another percentage point to $79.46 a barrel for Brent and $74.67 for West Texas Intermediate. Around midday, August NYMEX WTI futures were up around $3.15 to $74.55 a barrel, while September ICE Brent rose $3.50 to $79.55.
Diesel outpaced gasoline in the rally, most likely reflecting supply worries after Russia last week banned its diesel exports for the remainder of July.
A reopened waterway shuts again
The U.S. had lifted its blockade after a memo of understanding was signed on June 17, which helped resume the flow of oil, with some 120 million barrels making it through the strait since then. But the cease-fire stayed fragile, with Iran claiming the memo gave it control of the strait and Washington pushing back.
Traffic has thinned sharply. Kpler’s MarineTraffic service reported that commercial crossings fell 52% over the weekend versus the prior weekend, with just 12 crossings observed on Sunday against more than 100 ships a day before the war. Traffic through the waterway now runs at roughly a third of its normal pace.
Thin reserves raise the stakes
The renewed squeeze meets depleted buffers. The Strategic Petroleum Reserve sat at 319.5 million barrels for the week ending July 3, its lowest since April 1983, after weeks of draws used to soften the earlier closure. According to Barron’s, RBC Capital Markets head of global commodity strategy Helima Croft warned: “More pain could certainly be in store in a prolonged Hormuz paralysis situation” given the depleted inventory.
Ritterbusch and Associates said the pattern of attacks followed by negotiations could continue through much of the summer, limiting WTI and Brent gains to $80 and $86 a barrel. Even so, the market has now priced back nearly all the relief it gained after the June deal.
Sources: Barron’s, FXStreet, MarketScreener
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