Hormuz closure pushes oil above $95, sparking safe-haven demand

(P1) The effective closure of the Strait of Hormuz sent oil prices above $95 a barrel and spurred a flight to safety in currency markets, strengthening the U.S. dollar and Japanese yen as traffic through the vital waterway dwindled to less than 10% of normal levels.

(P2) "There will be a permanent risk premium in the markets in terms of oil prices. I think we are in a world where oil prices will be more elevated as a result of this," Neil Shearing, chief economist at Capital Economics, told CBS News.

(P3) Global oil prices, which were trading between $65 and $73 per barrel before the conflict, hovered just above $95 on Friday. The risk aversion was palpable as daily vessel crossings in the strait, which normally number over 100, fell to an average of just 10 in April, according to data from Marine Traffic. The move drove haven demand for the USD/JPY pair.

(P4) The situation threatens to institutionalize higher energy costs and geopolitical risk, giving Iran de facto control over roughly 20% of the world's oil supply. The primary concern is not just a potential toll, but the leverage it gives Tehran, potentially using the threat of increased fees or closures as an economic weapon.

Tehran's Toll Booth

Reports indicate Iran's Islamic Revolutionary Guard Corps has established a "toll booth" regime, requiring vessels to obtain clearance codes and accept escorted passage. While not yet an official toll, analysts from Lloyd's List Intelligence report at least two vessels have paid fees in Chinese yuan. Hamid Hosseini, a spokesperson for Iran's energy exports union, suggested a tariff equivalent to $1 per barrel could be imposed, potentially costing a single oil tanker as much as $2 million per passage.

Broader Economic Risks

While a $1 per barrel toll alone might not drastically alter production costs for Gulf states, the larger issue is the precedent and the uncertainty it creates. Economists warn that the "permanent risk premium" will keep energy prices elevated for months. Furthermore, the situation will likely cause ship insurance providers to increase their rates, adding another layer of cost that will ultimately be passed on to consumers. "It will take a long time for ship owners and insurance companies to become comfortable with this unusual model, and freight rates and insurance premiums will remain elevated," said Artem Abramov, senior partner at Rystad Energy.

This article is for informational purposes only and does not constitute investment advice.