Key Takeaways:
Oil benchmarks closed the week up nearly 10 percent as the Strait of Hormuz disruption deepened and Red Sea tanker attacks added a second chokepoint to the supply crisis.
Brent crude settled at $96.78 a barrel Friday, down 3.88 percent on the session but up 9.85 percent for the week, as a diplomatic overture from Pakistan failed to offset the worst supply disruption through the Strait of Hormuz in decades. WTI crude finished at $89.31, losing 3.12 percent Friday but gaining 9.21 percent on the week.
"The rally was primarily driven by escalating geopolitical tensions after Iran-backed Houthi militants claimed they had attacked Saudi oil tankers in the Red Sea," said Vijay Valecha, chief investment officer at Century Financial. He noted the attack "threatens a key alternative shipping route to the Strait of Hormuz, forcing cargoes destined for Europe to take the much longer route around South Africa."
Both benchmarks surged earlier in the week — WTI touching $93.50 and Brent briefly punching through $100 — before profit-taking set in. Crude exports from the Middle East Gulf fell 82 percent between January and June, from 18.8 million barrels a day to 3.4 million barrels a day, according to Wood Mackenzie. Iraq, which exported 3.77 million barrels a day in January, recorded zero exports by June. Kuwait and Qatar followed the same path from April, having no pipeline bypass.
The supply shock is real and measurable, but the path forward depends on whether diplomatic channels reopen faster than the military escalation. Trump said he is close to deciding on a massive attack against Iran, while Pakistan worked with China to restart US-Iran talks. UBS sees Brent at $85 by year-end if shipping normalizes — a scenario that requires both the Strait of Hormuz and the Red Sea to be safe for transit, a condition not met today.
Saudi Arabia diverted flows through its East-West Petroline to the Red Sea terminal at Yanbu, which handled 98.6 percent of Saudi liftings by June. But Yanbu volumes have fallen 41 percent from their March peak, and the Houthi strikes on two Saudi tankers near Bab al-Mandeb this week exposed the vulnerability of that workaround. "What looked like diversification was in reality a shift from one strategic bottleneck to another," said Ian Solis, data analyst at Wood Mackenzie.
JP Morgan estimates global oil supply has fallen by 11.1 million barrels a day since the conflict began, while demand has dropped 5.1 million barrels a day on weaker Chinese crude imports — a demand slump that Valecha said has "helped prevent an even sharper rise in oil prices." Technically, he flagged $91 as key support and $94.50 as the level that would open the door toward $99.
The market sold off Friday on news of Pakistan's diplomatic effort, but the underlying supply picture has not changed. The US military completed a 13th consecutive night of strikes on Iranian targets, hitting command centers, drone storage and maritime capabilities. Iran continues to respond to each round. Insurance costs for vessels entering the region keep climbing, and fewer ships are willing to enter without military escort.
"We remain confident that prices will follow the usual geopolitical pattern and that the current spike will prove short-lived," said Norbert Rücker, head of economics at Julius Baer, though his firm shifted its natural gas outlook to Cautious, judging the current risk premium in energy prices "excessive."
Beyond the physical blockage, a new financial risk is emerging. Oxford Economics found that betting markets "signal a 72 percent probability of Iran introducing fees by year-end" for Strait of Hormuz transit. Iran's implied $1-per-barrel levy could raise an estimated $6.8 billion annually — more than Egypt earned from the Suez Canal in the 2025/26 fiscal year — though higher transit costs would only accelerate producers' shift toward pipelines and alternative routes.
For now, the market is balancing two competing realities: a supply shock that is measurable and still deepening, against a geopolitical logic that has, so far, always found its way back to the negotiating table. Regular Hormuz transits, lower insurance costs and Saudi cargoes moving through the Red Sea without diversion would give sellers a real reason to press. None of those conditions were met this week.
This article is for informational purposes only and does not constitute investment advice.
