Oil Prices Surge Past $100 as US Orders Strait of Hormuz Blockade

TLDR

• Brent crude surged over 9% to near $104 a barrel after the US announced a blockade of vessels trading with Iran
• The blockade of the Strait of Hormuz follows failed US-Iran ceasefire talks in Pakistan over the weekend
• Iran said it “will not allow” the embargo and rejected future nuclear talks with the US
• The Strait has been effectively closed since US and Israeli strikes on Iran began in late February
• OPEC has warned that damage to Middle East energy assets will have a prolonged impact on supply

Oil prices jumped sharply on Monday after the US military announced it would begin blockading all vessels trading with Iran, sending Brent crude above $100 a barrel for the first time in months.

Brent futures rose as much as 9.1% to near $104 a barrel. European natural gas futures spiked almost 18% at one point. US crude also rose over 7%.

The blockade covers all ships entering or leaving Iranian ports. It does not apply to other vessels attempting to pass through the Strait of Hormuz itself.

US Central Command said enforcement would begin at 10 a.m. New York time on Monday. The announcement came after peace talks between Washington and Tehran in Islamabad collapsed over the weekend.

Vice President JD Vance led the US delegation and left Pakistan early Sunday after 21 hours of talks failed to produce an agreement. Key sticking points included Iran’s nuclear program, the reopening of Hormuz, and Iran’s support for proxy groups including Hezbollah.

The Strait of Hormuz had already been effectively closed since US and Israeli strikes on Iran began in late February. Iran had been imposing fees on some vessels and keeping traffic at a fraction of pre-war levels, cutting off roughly 20% of the world’s oil supply.

Scramble for Crude Supply

Refiners and traders around the world are now scrambling for immediately available crude cargoes as physical supplies tighten further.

On Monday morning, two fuel tankers attempted to exit the Gulf via the Strait by sailing close to Iran’s coast — the first vessels to try since the blockade was announced.

China Factor

Iran was still shipping crude and condensate out of the Persian Gulf in March, with China as the top destination. Some ships carrying oil bound for China are now caught up in the blockade.

Former US Ambassador to Saudi Arabia Michael Ratney raised concerns about what happens if US Navy ships attempt to stop those vessels, warning of a potential crisis in US-China relations.

The Wall Street Journal reported that Middle Eastern governments were attempting to broker new ceasefire talks between Washington and Tehran in the coming days.

OPEC is due to publish its monthly market report later Monday.

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