The Commodities Feed: Oil Surges As US Reinstates Blockade On Iran

Energy prices are surging as tensions between the US and Iran build and vessel traffic through the Strait of Hormuz slows to a trickle

Energy - Trump’s Hormuz toll adds another layer of uncertainty

Oil prices surged yesterday, with ICE Brent settling 9.6% higher on the day — back above $83/bbl. This strength has continued into early morning trading today, with little sign of easing tensions between the US and Iran. In fact, we’re seeing the opposite with military strikes continuing, more commercial vessels hit in the Strait of Hormuz, and, importantly, the US reimposing its blockade on Iran. The return of the US blockade is much more impactful for markets than the previous suspension of the sanction waiver on Iranian oil. The Memorandum of Understanding is starting to look well and truly dead. The consensus says neither side wants an escalation — yet their recent moves tell a different story. Clearly, oil prices simply aren’t high enough yet to compel Washington to push harder for de‑escalation.

The US continues to say that the Strait of Hormuz is open. But given the growing risk of attack, these comments will offer little comfort to ships. This is reflected in ship tracking data, which shows that vessel crossings yesterday fell to just a trickle. There will likely be additional vessels navigating in the dark given increased hostilities. But clearly, the trend in vessel movements is downward.

The other layer of uncertainty for markets is the cost of navigating the Strait of Hormuz. It's well-telegraphed that Iran is insisting on charging a toll. But President Trump said that the US will charge a fee equivalent to 20% of a cargo's value for providing safe passage for vessels. There are few details on how this would work—or how serious Trump is about it. A 20% fee on a VLCC that carries 2m barrels at $80/bbl, would be equivalent to around $32m or an additional cost of $16/bbl. This is significantly higher than the $1/bbl toll for which Iran has been pushing.

OPEC's latest monthly market report, out yesterday, showed that the bloc’s production increased by 1.4m b/d month-on-month to 18.2m b/d. Increases were driven by Kuwait and Iraq, which pumped 880k b/d and 446k b/d more, respectively. The UAE, which recently exited OPEC, increased output by 1.64m b/d MoM to 3.8m b/d.

Developments in the Middle East have also seen European natural gas prices surging. TTF settled almost 5.4% higher yesterday, breaking convincingly through EUR50/MWh. The market continues to move higher this morning following the US reimposing a blockade on Iran, generating plenty of uncertainty over LNG flows from the Persian Gulf. Europe is looking vulnerable heading through the injection season, with storage just 52% full, well below the 5-year average of 68%. JKM’s continued premium to TTF is prompting LNG cargoes to be redirected to Asia, leaving Europe tighter.

Metals - Gold sinks as Hormuz risk revives Fed fears

Gold fell sharply on Monday, with silver also under pressure, as renewed tensions in the Middle East drove oil prices higher. This is reinforcing concerns that inflation could remain elevated and keep the Federal Reserve on a tighter policy path. Higher US yields and a stronger dollar continue to weigh on precious metals.

Gold remains vulnerable around the $4,000/oz level, with the market closely watching developments around the Strait of Hormuz and their implications for energy prices, inflation and interest rates.

Attention now turns to US inflation data and Fed Chair Kevin Warsh’s testimony before Congress this week. A stronger CPI print or hawkish Fed messaging would add pressure on gold and silver, while any signs that inflation risks are easing, or that the Fed is less inclined to tighten further, could help stabilise prices after the recent sell-off.

In base metals, copper found support from tightening LME warehouse dynamics. Cancelled warrants surged by more than 23kt on Monday — the largest one-day increase since May — after ten consecutive sessions of declines. Most cancellations have been reported in Taiwan, South Korea and Singapore. The move pushed cancelled warrants to around 43% of total LME inventories. It highlights strong physical demand and continued shipment diversions to the US ahead of the Trump administration's review of copper import tariffs. Meanwhile, on-warrant stocks fell to their lowest level since February, while total LME inventories extended their decline for an 18th consecutive session.