Oil up 9% to one-month high as US says it will blockade entire Iranian coastline, all vessels

HOUSTON — Oil prices surged more than 9% on Monday, reaching a one-month high after reports that a United States naval blockade set to begin on Tuesday would cover Iran’s entire coastline, ports, oil terminals, and all vessels regardless of flag. The move renewed concerns over energy shipments through the Strait of Hormuz, a key global oil transit route.

Brent crude futures settled $7.29 higher, or 9.59%, at $83.30 a barrel, while U.S. West Texas Intermediate (WTI) crude futures rose $6.73, or 9.42%, to $78.14 a barrel.

Brent recorded its largest single-day dollar gain since April 2 and reached its highest settlement since June 12. Meanwhile, U.S. crude posted its biggest daily gain since April 29, closing at its highest level since June 15.

The U.S. is scheduled to reinstate the naval blockade on July 14 at 2000 GMT, according to the U.S. Navy-led Joint Maritime Information Center. The blockade had been lifted in mid-June.

Earlier Monday, President Donald Trump said the United States would reinstate the naval blockade and receive a 20% reimbursement on all cargo shipped through the Strait of Hormuz following renewed military exchanges with Iran.

“President Trump’s reinstatement of restrictions on Iranian maritime traffic, alongside retaliatory attacks and sharply reduced vessel flows through the strait, has intensified concerns over near-term supply availability,” Gelber & Associates analysts said in a note.

Iran’s top joint military command said Tehran would not allow Washington to intervene in the management of the strait, warning that any attempt by U.S. vessels to pass through without authorization would be confronted.

The United Nations shipping agency also opposed Trump’s proposal, saying it rejected any fees imposed on waterways used for international navigation and noting there was no legal basis for mandatory tolls on strait transits.

Before the conflict began in late February, the Strait of Hormuz carried around one-fifth of the world’s daily oil and liquefied natural gas supplies.

Shipping activity had started to recover during a fragile ceasefire agreement in June but slowed again as tensions increased.

“The focus will remain on the number of inbound tankers, as a lower number could impact production. Currently, we see a risk premium and disruption risk supporting prices,” UBS analyst Giovanni Staunovo said.

Efforts to Bypass Strait of Hormuz

As concerns grow over prolonged disruptions, analysts expect countries to explore long-term alternatives to bypass the Strait of Hormuz.

Goldman Sachs estimated that expanded pipeline capacity in the Middle East could protect more than 60% of pre-war Gulf oil exports from future disruptions in the strait by the end of 2028.

The bank forecast that pipeline capacity bypassing Hormuz could increase by 3.8 million barrels per day (bpd) by the end of 2027 and 7.3 million bpd cumulatively by the end of 2028, bringing total effective bypass capacity to more than 14 million bpd.

During the interim peace agreement, Iran increased exports, leading to higher volumes of Iranian oil supplies stored at sea.

However, sales have remained slow as China’s independent refiners shifted toward cheaper crude supplies from Iraq, the United Arab Emirates, and Qatar.

The Abu Dhabi National Oil Company set the August official selling price of its benchmark Murban crude at $80.01 a barrel, down from $101.48 a barrel the previous month.

Russian Supply Disruptions Add Pressure

Russian energy supplies have also faced disruptions as Ukraine continues efforts to reduce funding for Moscow’s war effort.

Ukraine’s Security Service said it struck an oil depot in Russia’s Stavropol region overnight, as well as three storage tanks at an oil-loading facility in the port of Kavkaz in Russia’s southern Krasnodar region.

Meanwhile, the Caspian Pipeline Consortium, which handles about 80% of Kazakhstan’s oil exports, reduced supplies by 7% last month compared with May due to maintenance at the country’s largest oil field, Tengiz, and lower Russian flows, according to two industry sources.

In the United States, crude oil stocks in the Strategic Petroleum Reserve declined by about 3 million barrels last week to 316.5 million barrels, the lowest level since April 1983, according to Department of Energy data.

The withdrawals are part of a U.S. agreement to release 172 million barrels from the reserve.

-Reporting by Georgina McCartney in Houston, Anushree Mukherjee in Bengaluru, Florence Tan, Helen Clark. Editing by Muralikumar Anantharaman, Mark Potter, Barbara Lewis, Nick Zieminski, and Sanjeev Miglani/Reuters