US-Iran War Disrupts Oil and Natural Gas Routes

Physical oil prices surged past $154 a barrel and freight rates, shipping insurance, and fuel costs escalated worldwide as the conflict between the United States and Iran disrupted crude and natural gas flows through the Strait of Hormuz and the Bab al-Mandeb Strait.

Tanker Freight Surges Under Strait of Hormuz Blockade

As the war entered its eighth month, direct military blockades and attacks on commercial vessels choked off normal passage. Prior to the outbreak of hostilities, the Strait of Hormuz, located on the eastern edge of the Arabian Peninsula, handled approximately 27 percent of worldwide seaborne oil shipments and nearly 20 percent of liquefied natural gas deliveries. Strait of Hormuz on the eastern side of the Arabian Peninsula. The military confrontation between the United States and Iran has fundamentally altered global energy transport.

Tanker operators faced extreme financial burdens. By early October, tanker captains crossing the Persian Gulf earned the equivalent of as much as $100,000 a month with $50,000 trip bonuses, while war-risk insurance for a supertanker reached $20 million per voyage, according to reports detailing the commercial gamble of moving through the corridor.

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Additional premiums for vessels transiting the strait rose to approximately 7.5 to 10 percent of hull value in July, jumping from roughly 1 to 3 percent weeks earlier, as outlined by Marcus Baker, global head of marine, cargo, and logistics at Marsh. Smaller clean tankers carrying refined products faced particular difficulty absorbing these insurance costs, discouraging them from crossing the waterway.

Scramble for Immediate Supply Drives Record Brent Prices

Brent crude closed at $104.72 on October 9, marking an increase of about 44.5 percent. Spot prices for physical crude reached historic highs as buyers scrambled for immediate delivery.

US-Iran War: Global Trade Routes Under Fire | World Business Watch

Buyers are piling on Brent because they can get their hands on it right away.

Naohiro Niimura, co-representative director at Tokyo-based Market Risk Advisory, via Nikkei Asia

While benchmark futures rose more moderately due to expectations of eventual supply recovery, physical shipments commanded unprecedented premiums. To circumvent the blockade, oil traders resorted to dark transits—shuttling crude in smaller vessels of 40,000 to 50,000 barrels with their transponders switched off before transferring the oil to larger tankers in the Oman Sea.

Red Sea Conflict Expands and Product Costs Rise

According to Saudi Arabia’s General Authority of Civil Aviation, an attack on Riyadh’s King Khalid International Airport left 12 individuals dead and 309 wounded. The crisis expanded beyond the Persian Gulf as Yemen’s Iran-aligned Houthi movement targeted Saudi oil tankers transiting the Bab al-Mandeb Strait.

US-Iran War Disrupts Oil and Natural Gas Routes — Photo: Nikkei Asia

Despite the security situation, Saudi Arabia’s Ministry of Energy announced that the 25th World Petroleum Council Energy Congress began in Riyadh on Sunday. Meanwhile, Johannes Rauball, senior crude analyst at Kpler, warned that if the Houthis begin threatening ships from all countries, it would create another significant blow for crude markets.

The disruptions severely constrained refined product markets heading into the Northern Hemisphere winter. European natural gas prices traded at their highest levels since December 2022 as LNG flows from Qatar and the UAE remained down about 80 percent year-on-year. Diesel futures for delivery in December 2027 climbed past $1,000 per tonne from approximately $644 before the conflict.

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Global Oil Production and Inventories Projected Through 2027

Observed global oil inventories fell significantly between February and August 2026, leaving major economies with depleted buffers as the energy system faces lasting structural pressure. Driven by a rebound in Middle Eastern shipments, the International Energy Agency projects that worldwide oil production will climb to 108.3 million barrels daily by 2027, up from 100.7 million barrels per day in 2026. Global demand is projected to grow from 102.4 million barrels per day in 2026 to 104.4 million barrels per day in 2027.