Global oil prices surged to their highest levels in five weeks today, driven by renewed tensions between the United States and Iran. The escalating geopolitical climate has reignited concerns over the security of crude shipments through the Strait of Hormuz, a critical chokepoint for global energy supplies.
West Texas Intermediate (WTI) crude futures rose by 0.9% to settle at $91.01 a barrel, extending a three-session winning streak. Brent crude, the international benchmark, gained 1% to close at $95.63 a barrel, marking its first time above $95 since late July.
Escalating US-Iran Conflict
The latest escalation follows a new round of US strikes on Iranian targets. President Donald Trump issued a warning against retaliation, but Iran reportedly responded by attacking sites in Jordan, Bahrain, and Kuwait, nations that host US military forces. This cycle of aggression has intensified market expectations for a prolonged military confrontation, diminishing hopes for a diplomatic resolution.
Reports also indicate that the US struck two Iranian vessels under a new “tanker-for-tanker” policy approved by President Trump. This occurred shortly after two oil supertankers attempting to exit the Strait of Hormuz were reportedly hit by projectiles the previous day, further highlighting the precarious security situation in the region.
Strait of Hormuz: A Vital Chokepoint
The Strait of Hormuz remains central to the global oil supply outlook. US Treasury Secretary Scott Bessent noted that 17 million barrels of crude moved through the waterway on August 31, with average exports around 8 million barrels per day. An additional 4 to 5 million barrels are transported daily via pipelines that bypass the strait.
Despite these alternative routes, Iran's Islamic Revolutionary Guard Corps declared that the recent fighting had only “tightened the lock” on Hormuz, underscoring the potential for significant disruption. Crude prices are now approximately 30% higher than they were when the broader regional conflict began in late February, with refined fuels, particularly diesel, experiencing even sharper increases due to the West Asia conflict and the ongoing Russia-Ukraine war.
US Refiners Ramp Up Production
The heightened supply risks are already impacting the US fuel market. Recent data from the Energy Information Administration shows US refinery runs have surged to their highest level in seven years, as refiners capitalize on strong profit margins. Midwest refinery utilization, in particular, reached an unprecedented 103.5% of capacity. Concurrently, US gasoline imports fell to about 370,000 barrels a day last week, reflecting the tightening domestic fuel market.
While Chevron CEO Mike Wirth acknowledged that global oil supply and demand were moving towards balance after increased flows through the Strait of Hormuz in recent weeks, he cautioned that significant risks persist, pointing to the volatile geopolitical landscape.