July 24th -
On Thursday, July 23, the attack on a Saudi oil tanker in the Red Sea, coupled with the escalating U.S.-Iran standoff, triggered a concentrated surge in risks along two key Middle Eastern crude oil shipping routes. As a result, international crude oil prices experienced a new round of sharp increases, and Brent crude once again firmly broke through the $100 mark—a milestone it had last reached two months ago.
I. Price Trends: Crude oil prices surged across the board, with Brent stabilizing above $100, and refined oil products strengthening in tandem.
At the close of trading in New York, NYMEX September WTI crude oil surged by $5.36, representing a price increase of 6.17%, with the settlement price reaching $92.19 per barrel—a new high since June 4. Meanwhile, ICE September Brent crude oil rose by $6.62, marking a price increase of 7.04% and closing at $100.69 per barrel, hitting a new high since May 19. Since the outbreak of the U.S.-Iran conflict in February, Brent crude has accumulated a price increase of nearly 40%, with the vast majority of this rally concentrated in July.
Refined oil prices followed the upward trend in crude oil costs: In September, RBOB gasoline rose by 2.44%, settling at $3.3242 per gallon; heating oil surged by 4.20% in September, closing at $4.2370 per gallon. The broad-based rise in energy prices is intensifying pressure on global inflation to rebound.
II. Factor Analysis: The Crisis Resonance of the Red Sea and Hormuz Straits Leads to a Sharp Reduction in Global Crude Oil Shipping Capacity
The core logic behind this round of sharp oil price increases is the normalization of the blockade of the Strait of Hormuz and the direct attack on the Bab al-Mandeb Strait in the Red Sea. With both of the Middle East’s key crude oil export routes simultaneously under pressure, the risk of supply disruptions has driven up the risk premium.
(1) The Red Sea shipping route has been attacked, threatening Saudi Arabia's alternative export channels.
On July 20, the Houthi armed forces imposed a maritime embargo targeting Saudi Arabia. On July 23, they attacked two Saudi crude oil tankers; the tanker "Enceilia" caught fire at its bow, marking a complete breakdown in shipping safety.
Previously, in order to circumvent the navigational challenges in the Strait of Hormuz, Saudi Arabia relied on its east-west crude oil pipelines within the country to transfer more than 70% of its crude oil to the port of Yanbu on the Red Sea for export. Recently, Yanbu Port has been shipping an average of 4 million barrels of crude oil per day—four times the volume shipped during the same period last year—making it the most important alternative export route for crude oil from the Persian Gulf. As a vital waterway through the Red Sea, the Bab al-Mandeb Strait carries a substantial portion of Saudi Arabia’s exported crude oil. Should this passage become blocked, Saudi Arabia’s detour plan would completely fall apart. With both critical chokepoints simultaneously constrained, approximately 30% of global seaborne crude oil trade would face transportation disruptions, and the potential supply gap could far exceed the scale seen during the oil crisis of the 1970s.
(2) The blockade of the Strait of Hormuz continues to tighten, halving crude oil shipments from the Gulf.
The U.S. military’s maritime blockade against Iran has been in place for nine full days, and enforcement measures continue to intensify. To date, the blockade has forced a total of 12 commercial vessels to reroute and left one vessel completely unable to continue sailing, while also imposing strict restrictions on cargo shipments through Iranian ports. Shipping data show that crude oil loading volumes in the Gulf over the past seven days have plummeted to just 2.5 million barrels per day—significantly lower than the 30-day average of 6 million barrels per day. Market estimates suggest that Iran’s crude oil shipments have virtually dropped to zero from the earlier level of 1.5 to 2 million barrels per day at the beginning of the month. Iran has specifically tightened controls on transit tankers, while ordinary commercial vessels are proactively avoiding routes through the Persian Gulf, causing a dramatic collapse in logistical efficiency in the Strait of Hormuz.
(3) The U.S.-Iran conflict continues to escalate, and heightened expectations of retaliation are driving up oil price premiums.
Trump indicated that he is seriously considering restarting large-scale military operations against Iran, and warned: “If the Houthi militias continue to attack Saudi vessels, we will directly target Iran and launch a powerful strike against both Iran and the Houthis.” The U.S. military continues to carry out frequent airstrikes on Iran’s domestic infrastructure, raising the risk of ground warfare. Analysts point out that shipowners’ willingness to hedge against risks continues to rise. As attacks in the Persian Gulf and the Red Sea become increasingly commonplace, tanker capacity will proactively shrink, keeping the geopolitical risk premium on oil prices persistently high. According to Goldman Sachs’ estimates, if the Strait of Hormuz remains closed for an extended period—say until 2027—the price of Brent crude could surge above $120 per barrel in the fourth quarter. Moreover, if the Red Sea also experiences simultaneous disruptions, the upward potential for oil prices will be further amplified.
(4) Tight Supply and Demand: OPEC+ Plans to Increase Production but Faces Challenges, EU Tightens Sanctions on Russia
OPEC+ Plans Slight Production Increase; Geopolitical Shipping Bottlenecks Weaken Hedging Effect
Market sources indicate that OPEC+ is highly likely to finalize its September production increase plan at its meeting on August 2. The seven core member countries, including Saudi Arabia and Russia, are planning to boost daily output by 188,000 barrels, continuing the steady pace of production increases seen in recent months. However, under the current geopolitical environment, this planned increase will hardly translate into effective supply. On the one hand, crude oil from many Gulf countries needs to be shipped via the Strait of Hormuz; due to controls over the shipping lanes, the increased production cannot be smoothly loaded onto vessels for export. On the other hand, OPEC’s overall crude oil production in June stood at only 36.28 million barrels per day, a significant drop from the pre-conflict level of 43 million barrels per day. The conflict has severely constrained oilfield operations and logistics, slowing down the recovery of actual production capacity. With an incremental increase of less than 200,000 barrels per day, it is simply impossible to make up for the potential transportation shortfall of millions of barrels caused by the blockage of the two key shipping routes. As a result, the impact of this production increase on suppressing oil prices will be extremely limited.
EU Intensifies Sanctions on Russian Oil, Global Oil Trade Rules Tighten Again
The EU has reached an agreement on the 21st round of sanctions against Russia, adding 32 Russian banks to the trading ban and tightening controls over crypto assets and crude oil trading platforms. The dynamic pricing mechanism for Russian oil has been suspended to prevent Russia from engaging in arbitrage activities amid sharp oil price spikes. For the first time, ships providing services to Russia’s “shadow fleet” of crude oil tankers are being sanctioned. These sanctions further restrict Russia’s crude oil trade channels, leading to a tighter global supply of tradable crude oil. Coupled with rising costs for shipping insurance and detour routes, this effectively increases overall crude oil trading costs, providing indirect support to oil prices.
3. Outlook for the Future Market
Crude oil analysts believe that, from a supply-and-demand perspective, low inventory levels are setting the stage for persistently high oil prices. The U.S. Strategic Petroleum Reserve has already fallen to its lowest level since 1983, and overall crude oil inventories have hit multi-decade lows. Coupled with the significant challenges OPEC+ faces in increasing production, the supply side is unlikely to ease its tight situation in the short term. Moreover, geopolitical factors are amplifying the volatility of crude oil prices, as there is insufficient inventory available to cushion against the risk of geopolitical supply disruptions on a large scale. Once shipping lanes experience a substantial closure, the only option left will be to rely on price hikes to curb consumption and balance supply and demand. As a result, crude oil prices are expected to continue surging in the near term.
Overall, the current oil market has entered a triple bullish pattern characterized by high geopolitical risks, historically low inventories, and difficulties in increasing production, with geopolitical factors in the Middle East becoming the absolute dominant factor for oil prices. Before there are clear signs of easing in the geopolitical conflicts, the situation of high oil price volatility and intensified fluctuations is unlikely to change.
