Oil prices have climbed to near six-month highs even though shipments through the Strait of Hormuz have returned to close to pre-war levels, as traders weigh sharply higher shipping costs and the risk that US President Donald Trump resumes attacks on Iran before the midterm elections.
The price climbed to just under $US117 a barrel last week after trading below $US100 a month ago, with futures pricing suggesting it could stay above $US100 well into next year. Near-term physical crude, known as Dated Brent, jumped late in the week to around $US125 a barrel, a jump the analysis suggests reflects sudden urgency among buyers to secure oil before a new round of violence erupts. Dated Brent normally trades at a premium of less than $US2 to futures.
Supply has largely held up. Tanker volumes through the strait are close to pre-war levels, including vessels escorted by the US Navy and some tankers that appear to be paying Iranian fees for safe passage. Flows through Saudi Arabia's pipeline to the Red Sea have also recovered, despite Houthi attacks on the pipeline, the port of Yanbu, Saudi oil fields and Riyadh's King Khalid International Airport. Last week the UK Maritime Trade Operations Centre reported 11 confirmed attacks in the strait, although most targeted ships do not report attacks, and other authorities claim at least 28 incidents this month.
The cost of getting oil to market helps explain the price jump. Chartering a tanker through the strait costs about 12 times pre-war levels, insuring the cargo more than three times as much, and crews are paid two to three times their pre-war salaries, with captains earning nearly six times plus bonuses in the tens of thousands of dollars. Vessels shuttling cargoes to ships waiting outside the strait have also tied up extra tanker capacity worldwide.
The bigger factor, the analysis argues, is the prospect of renewed conflict. Trump stopped attacking Iran in late July in the hope of cooling oil and US fuel prices before the midterms. He has since persuaded the G7 to release strategic diesel reserves, allowed tax-exempt diesel on US roads and, in a move the analysis calls controversial and probably illegal, lifted sanctions on Russia and struck a deal with Vladimir Putin to import Russian diesel. None of it has materially lowered prices: US gasoline is still 40 per cent higher than a year ago and diesel about 74 per cent higher.
With elections just over a week away, Trump's rhetoric has hardened. On Thursday he told reporters that "something one way or the other" would happen "fairly soon" with Iran. On Sunday he said it was "getting to be decision time" on whether to strike a deal or restart attacks. "I have a decision to make. Do I finish it off, which would be very easy to do, or do I make a deal?" he said on Fox News. "That's all. We don't play games."
The US has been moving diplomats and military staff out of the region and sending more military resources in, and Iran has vowed to retaliate if attacks resume. Foreign Minister Abbas Araghchi posted on social media: "Last time you wanted to 'finish the job' Iran emerged even stronger. Want to try your luck again? Be our guest. But be careful; we have unfinished jobs, too."
The analysis notes that Trump expressed similar confidence when the US and Israel launched their attacks on February 28, nearly eight months ago, and that damage to Middle Eastern refineries, along with Ukraine's strikes on Russian refineries, has taken refined fuel out of the global market. Even if crude flows are sustained, it says, shortages of refined products will keep hurting consumers beyond any end to the war.