Oil Rises on Concerns over Strait of Hormuz Reopening Plans

Oil prices extended their gains on Friday, driven by escalating concerns over Iran's potential plans to restrict passage through the Strait of Hormuz. Brent crude futures climbed 0.97% to $83.29 a barrel, while US West Texas Intermediate futures rose 0.83% to $77.93. This surge follows Thursday's settlement where oil futures rose over $3 a barrel amidst reports of Iran reviewing a bill to ban US and Israeli vessels from the strait. Approximately one-fifth of the world's oil and liquefied natural gas is transmitted through this crucial waterway.

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The proximate trigger is more specific, it's (oil prices) reacting to Iran's published draft plan for Hormuz ⁠transit conditions, which would ban US and Israeli vessels and ‌require other 'hostile' countries to pay compensation before passage.

Analysts suggest that the recent developments signal that hostilities between Iran and the US are far from over. Lin Ye, vice president of commodities market – oil at consultancy Rystad Energy, noted that oil prices are reacting to Iran's draft plan for Hormuz transit conditions. This plan would ban US and Israeli vessels and impose fines on 'hostile' countries. Ye added that the market is pricing in a conditional corridor rather than a restoration of normal flow.

According to Fars news agency, an Iranian lawmaker stated that a parliamentary committee is reviewing a preliminary bill. This bill aims to ban US, Israeli, and other vessels deemed hostile from the Strait of Hormuz, with violators facing fines up to 20% of their cargo value. Iran is reportedly seeking transit fees between 5% and 7% of cargo prices for ships using the strait, while Oman is discussing around 3%. However, four industry sources indicated that the proposed deal faces significant hurdles due to US sanctions and restrictive insurance clauses.

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That's not the market ‌pricing in a bad deal, it's pricing in confirmation that whatever emerges is ‌a managed/conditional corridor, not a restoration of normal flow.

Vandana Hari, founder of oil market analysis provider Vanda Insights, commented that the week's signals regarding a potential Iran-Oman transit deal have created market volatility. She noted that the situation remains unclear regarding the steps needed to finalize the agreement. Meanwhile, US President Donald Trump expressed optimism on Thursday, telling reporters he believed the war would end soon.

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This week’s signals on a potential Iran-Oman transit deal have driven a roller-coaster ride in market sentiment but as of now, (it is) left it in the dark as to what needs to happen for the agreement to be clinched.