Oil prices jump as Iran strike revives Hormuz risk

Oil prices jumped Friday after Reuters reported that Iran had struck Saudi Arabia for the first time in more than three months, dragging the Gulf conflict back into the oil market. Brent settled 4.59 per cent higher at $88.10 a barrel and US West Texas Intermediate gained 4.48 per cent to $82.49, a sharp rebuild of the risk premium traders had started to fade.

The strike undercut the calmer view forming in crude. Markets had been pricing a route back toward steadier flows through the Strait of Hormuz after earlier disruptions. Attacks near Al-Kharj and Yanbu pushed the question closer to Saudi infrastructure itself. The Strait of Hormuz normally carries around one-fifth of global oil supply, but a reopening counts for less if exporters, shippers and insurers are still wary of the route and its workarounds.

Timing made the price move sharper. AP reported that US forces had carried out another round of strikes on Iran. For oil traders, the more awkward development was the move into Saudi territory because it tested an assumption behind the Hormuz trade: the chokepoint could be stressed while Saudi export routes kept barrels moving.

Yanbu is central to that assumption. Reuters said Saudi Arabia has redirected more than 70 per cent of its normal daily crude exports to the Red Sea port through the East-West Pipeline, making the route the kingdom’s main bypass when Gulf traffic looks exposed. A CNBC report this week described Yanbu in similar terms, as the buffer traders count on when Hormuz risk spikes.

A threat to that buffer can lift prices even without a confirmed supply outage. The next channel is behaviour. As The National reported, war-risk shipping premiums had already climbed before the latest Saudi strike, raising the cost of each Gulf voyage and forcing insurers and shipowners to price danger before cargoes stop moving.

In the same Reuters market report, Andrew Lipow said another leg higher could come if tanker operators decide the risk is no longer worth the freight economics.

“If more tankers come under fire and become damaged, we’re going to see oil prices continue to move up as shipowners simply refuse to enter the Persian Gulf.”

Andrew Lipow, via Reuters

That leaves crude trading ahead of the physical tally. Prices can rise before barrels disappear if fewer ships are willing to load, fewer insurers underwrite voyages and refiners pay up for non-Gulf supply. For Gulf assets more broadly, the message is similar: the reopening trade has become harder to trust.

Why Yanbu matters

Yanbu was built to answer a narrower Hormuz problem. The Red Sea outlet lets Saudi Arabia move crude westward without sending every cargo through the Gulf chokepoint, and ABC reported that the kingdom had been looking at expanding that capacity further. A strike near the export route changes the market reading. Diversification now carries some concentration risk, with more barrels relying on a workaround that has been pulled into the escalation story.

Tamas Varga put that vulnerability plainly in the Reuters account of Friday’s oil move.

“Given that so much of Saudi Arabia’s exports have been redirected to the port of Yanbu via the East-West Pipeline to avoid Hormuz, any such development is a threat indeed.”

Tamas Varga, via Reuters

The weekly move shows how quickly the repricing can take hold. Reuters said Brent and WTI were each up about 16 per cent for the week, a scale of move tied to the next escalation as much as the current headline. The watchpoints now are tanker damage, insurance charges, Red Sea access and visible Saudi flows through Yanbu. If those deteriorate, the Gulf premium can remain embedded across crude, shipping and regional assets even without a formal closure of Hormuz.