US Navy halts all Iranian ships in Hormuz, reversing 10-day truce

The U.S. Navy vessel USS Pinckney blocked Iranian sea trade in the Strait of Hormuz on April 18, a sharp escalation that threatens to send oil prices soaring just one day after they plunged 9 percent on news the waterway was reopening. The move effectively closes the chokepoint to Iranian exports, reversing a fragile 10-day ceasefire.

The action invalidates recent market optimism. "While the market is thinking the worst is over and factoring in further rounds of peace talks... there is more hope than actual developments at this point," Suvro Sarkar, energy sector team lead at DBS Bank, had said just days earlier, a sentiment now overtaken by the naval blockade.

The blockade is a stunning reversal of a de-escalation that saw Brent crude fall to around $90 per barrel on April 17. That price drop came after Iran reopened the strait, which handles roughly one-fifth of global oil and LNG shipments, during a ceasefire between Israel and Hezbollah. Now, with the USS Pinckney preventing transit, those barrels are once again removed from a market already paying record premiums for alternative supplies.

The confrontation risks a dramatic spike in global oil prices, which could fuel inflation, reduce corporate profits outside the energy sector, and trigger a broad sell-off in equities. With diplomatic progress shattered, the market now faces the reality of a severe and immediate supply disruption with no clear resolution timeline.

From Ceasefire to Confrontation

The naval action derails diplomatic momentum that had been building for days. The reopening of the strait followed a tentative ceasefire in Lebanon and led to U.S.-Iran talks advancing in Pakistan. Markets had priced in a higher probability of a negotiated settlement over nuclear policy and maritime security. The April 18 blockade undoes the confidence that had pushed Brent crude down from a high near $96 a barrel earlier in the week. The U.S. had previously warned that military operations could resume if negotiations faltered, a threat that has now been realized.

Market Braces for Supply Shock

The physical oil market, already on edge, must now contend with a confirmed, indefinite disruption. Before the brief reopening, refiners in Asia and Europe were desperately seeking alternative crude supplies, pushing a cargo of WTI Midland for delivery to Rotterdam to a record premium of $22.80 a barrel above benchmark prices. This underlying tightness means the impact of the new blockade will be immediate and severe. The halt of Iranian trade removes millions of barrels per day from potential supply, forcing traders to bid aggressively for any available cargoes and likely pushing floating storage rates higher.

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