Oil prices volatile as cargo ship struck in Strait of Hormuz
Geopolitical tensions escalate in critical shipping lane that handles 20% of global oil supply
Oil markets swung between gains and losses on Wednesday after a cargo vessel was struck by a projectile in the Strait of Hormuz, forcing the crew to evacuate and reigniting fears of supply disruptions through one of the world's most critical energy chokepoints.
The incident, reported by UK Maritime Trade Operations, marks the latest escalation in maritime attacks across the Persian Gulf region. The Strait of Hormuz handles approximately one-fifth of global oil consumption and a significant portion of liquefied natural gas shipments, making any disruption a matter of acute concern for energy markets.
Brent crude, the international benchmark, was trading between $85 and $95 per barrel in volatile afternoon trading, while West Texas Intermediate fluctuated between $80 and $90. Prices had briefly surged above $100 per barrel earlier this month, approaching $120 at their peak, before retreating on signals of potential de-escalation and news of record strategic petroleum reserve releases.
"Even limited disruptions can trigger outsized price movements due to relatively tight global spare capacity and the concentration of oil exports passing through the Strait of Hormuz," analysts at GlobalData noted in a market commentary.
The March 11 incident is part of a broader pattern of maritime attacks that began around February 28, following military strikes by the United States and Israel on Iran and subsequent Iranian retaliation. Iran's Islamic Revolutionary Guard Corps has issued warnings against vessel passage through the strait, leading to attacks on commercial shipping and a significant reduction in maritime traffic.
Earlier in March, a tugboat assisting a stranded container ship was struck by two missiles, resulting in the deaths of at least four seafarers. A Bahamas-flagged crude tanker also sustained damage from an explosion near Kuwait, causing an oil leak. These incidents have sent shipping insurance costs soaring and forced some vessels to reroute.
Commercial traffic through the strait has declined by an estimated 90% in recent days, according to shipping industry reports, forcing some producers to curtail output. Southern Iraq's oil production has dropped by an estimated 70%, while Qatar temporarily halted LNG liquefaction at its Ras Laffan hub after a drone attack.
Geopolitical risk premium has become a dominant factor in oil pricing. Analysts estimated this premium at between $4 and $10 per barrel in late February, with some market observers referencing a "war premium" of $30-$60 per barrel that was aggressively unwound when de-escalation signals emerged. Fitch Ratings is reportedly revising its 2026 average oil price forecast upward to approximately $70 per barrel to account for this persistent risk.
Traders are now weighing the possibility of the International Energy Agency releasing strategic petroleum reserves to offset supply disruptions, a move that helped push prices lower earlier in the week. However, the IEA's ability to counter extended disruptions through Hormuz remains limited given the strait's strategic importance.
Major oil exporters, particularly those with production outside the Middle East such as Chevron, ExxonMobil, and Occidental Petroleum, stand to benefit from any sustained increase in oil prices driven by geopolitical tensions. However, the broader economic impact of elevated energy costs could dampen demand growth, particularly in emerging markets. The International Energy Agency is reportedly weighing a record oil reserve release, according to Benzinga, as markets brace for potential prolonged disruption.