The world's oil supply lines are getting squeezed from multiple directions at once.
The Strait of Hormuz is now the target of Iranian strikes on vessels. Separately, the Iran-aligned Houthi group attacked two Saudi oil carriers near the Red Sea after imposing a maritime embargo on Riyadh. In parallel, Ukraine continues to hit ships linked to Russia in both the Black Sea and the Sea of Azov as a component of its economic war strategy.
The result is a mess for global shipping. Since March 1, a total of 61 commercial vessels have been hit in the Strait of Hormuz, the Persian Gulf, and the Gulf of Oman, leading to at least 17 seafarer deaths and many more injured. In July, at least a dozen tankers were struck near the Strait of Hormuz, killing at least two seafarers.
The head of Marisks, Dimitris Maniatis, said: "After the collapse of the MOU, we have entered the worst phase of this conflict for merchant shipping." The MOU was a U.S.-Iran agreement to reopen the strait, but it collapsed, and Iran is now trying to assert control over the waterway.
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The attacks are not just scary headlines. They are directly hitting how much oil can move around the world.
Kazakhstan produces about 1.7 million barrels of crude per day, and 80% of that flows through the Caspian Pipeline Corporation pipeline to the Russian port of Novorossiysk. But Ukrainian attacks have forced CPC to suspend loadings there, threatening to shut in a major chunk of Kazakhstan's output. On top of that, more than 50% of Russia's refinery capacity has been taken offline by Ukrainian strikes, which tightens the market for diesel and other refined products as well as crude.
Millions of barrels of daily oil output are now at risk from the Red Sea attacks, as Saudi Arabia had diverted some flows via a pipeline to its western coast due to the Hormuz situation. Matt Smith, who leads commodity research at Kpler, noted that Saudi Arabia could reroute oil through a pipeline from a Red Sea port to the Mediterranean via Egypt, but logistical difficulties remain. He added that fully loaded supertankers are unable to pass through the Suez Canal, requiring a longer route around Africa.
Helima Croft, global commodity strategy head at RBC, summed up the broader problem: "Russia has now put a export ban on products and their refineries have been hit so massively by Ukraine. Russia is one of the largest product exporters, one the largest diesel exporters. It's really tightening the products market as well as the crude market."
The simultaneous attacks on three critical waterways have created a perfect storm for oil markets. The Strait of Hormuz alone handles about a fifth of the world's seaborne oil, and disruption there is compounded by the Red Sea and Black Sea threats. The loss of Russian refining capacity and the suspension of CPC loadings further strain supply.
Analysts think prices could keep climbing. If the region slides into full-scale war, crude could top $128 a barrel, which was the 2022 high after Russia invaded Ukraine. In a worst case, prices could reach $148, matching the all-time record from 2008.
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