Crude oil prices rose again on Thursday despite record-breaking government interventions on Wednesday in light of the attack on oil tankers and refineries across the Middle East.
On Wednesday, three oil tankers were reportedly attacked in the Strait of Hormuz, the narrow waterway through which over 20% of the global oil supply flows. Then, at night, a major oil refinery in Oman as well as three Iraqi oil tankers in its own territorial waters were attacked.
The brazen attacks on oil tankers overshadowed the impact of the largest ever coordinated release of oil from reserves. The IEA, an International Energy Agency comprising 32 nations, is to release 400 million barrels of oil from its reserves, while the US Strategic Petroleum Reserve is going to release 172 million barrels in the next 120 days.
For the IEA, this was more than double the 182 million barrels released in 2022 at the outset of the Russia-Ukraine war. In addition to the vulnerability of the oil tankers at sea in the volatile region, the time taken for oil to reach the refineries, usually 10-12 days, is also weighing on current market sentiment.
The military escalation has triggered a crisis in the maritime insurance market, causing premiums to surge by over 1,000% in some cases. Major insurers, including Lloyd’s of London and various P&I Clubs, implemented 72-hour cancellation notices for standard war risk cover in the Persian Gulf and Strait of Hormuz effective March 5, 2026.
Coverage is now being renegotiated on a voyage-by-voyage basis with significantly higher "additional premiums." For a standard large crude carrier (VLCC) valued at $138 million, insurance costs for a single transit have jumped from approximately $625,000 to as much as $14 million. Vessels with US, UK, or Israeli ties are facing "triple weighting" in their risk profiles, with some quotes reaching 10% of the ship's total value.
To prevent a total freeze in energy logistics, the US has established a $20 billion federal maritime reinsurance facility to act as a backstop. Despite this, the physical risk to crews and the high cost of coverage have reduced tanker traffic through the Strait by an estimated 80%, forcing many operators to reroute around the Cape of Good Hope, adding 10 to 14 days and $1 million in fuel costs per journey.
Coverage is now being renegotiated on a voyage-by-voyage basis with significantly higher "additional premiums." For a standard large crude carrier (VLCC) valued at $138 million, insurance costs for a single transit have jumped from approximately $625,000 to as much as $14 million. Vessels with US, UK, or Israeli ties are facing "triple weighting" in their risk profiles, with some quotes reaching 10% of the ship's total value.
To prevent a total freeze in energy logistics, the US has established a $20 billion federal maritime reinsurance facility to act as a backstop. Despite this, the physical risk to crews and the high cost of coverage have reduced tanker traffic through the Strait by an estimated 80%, forcing many operators to reroute around the Cape of Good Hope, adding 10 to 14 days and $1 million in fuel costs per journey.
As a cumulative effect, the price of Brent crude went up beyond $100 again, only to come back down below the threshold. On Wednesday night, Iran accelerated its attacks on the oil refineries of its neighbors and the tankers that deliver the commodity, perhaps in response to a new form of attack in the current conflict: drone strikes on military and paramilitary personnel manning checkpoints in Tehran that reportedly caused tens of casualties.
Hezbollah of Lebanon launched an intensive rocket attack from Lebanese soil in sync with the Iranian response.
President Trump, meanwhile, spoke as if he had already won the war while referring to the fate of the Iranian Navy and Air Force. He stated that the war will end soon while responding to questions from journalists, which had a positive but short-lived impact on energy markets.
In another development, meanwhile, a US-Israel joint force launched an attack on the main data center of Iran's oldest bank, Bank Sepah. They justified the attack on the ground that the institution is involved in paying the salaries of the IRGC, though several civilians were working in the bank at the time and their fate remains unknown.
Despite serious concerns over the global crude supply, China, the world's biggest importer of the commodity, appears immune to the supply shocks. Analysts explain that China has built up massive reserves over the years to cushion blows at times like this, with estimates suggesting their strategic and commercial reserves hold between 1.2 and 1.3 billion barrels of oil. Moreover, China can import oil from Russia through pipelines instead of relying on sea routes.
In short, as there is no sign of the conflict ending in the next few weeks, crude oil prices are expected to fluctuate wildly in proportion to war sentiments rather than the magnitude of the release from reserves.
