What’s That: The Strait of Hormuz (Iran Conflict Update)

Market Update: Yesterday, President Trump said the US Navy may escort oil tankers through the Strait of Hormuz, sending prices significantly lower. He also directed announced plans to provide political risk insurance for shippers. Although oil prices initially fell, prices rebounded later amid unclear timelines. In the US, the biggest impact on fuel markets has been for East Coast fuel supplies - steep backwardation and volatility change pipeline shipment economics, which could lead to tighter fuel supply for East Coast markets in the coming weeks.

In 2025, FUELSNews published a "What's That Wednesday" article on the Strait of Hormuz. This week, we're updating and expanding that article based on the ongoing conflict with Iran. Continue reading to learn why the Strait is so important, whose oil moves through the Strait, what alternatives exist for oil shipments, and how all this is impacting US markets.

What's the Situation at the Strait of Hormuz?

On February 28, 2026, the US and Israel launched a full-scale attack on Iran, directly impacting activity in the Strait of Hormuz, one of the world's most important shipping routes.

Iran quickly proclaimed the Strait was closed, warning vessels not to pass. As a result, tanker traffic dropped, with many ships either anchored or rerouted. Energy infrastructure across the region - shipping ports, refineries, and more - has also been attacked, further tightening supply concerns. At the same time, shipping insurance has been withdrawn, making transit through the area significantly higher risk, with shipping companies choosing to avoid the route altogether. Over 200 vessels have been stranded or left waiting near the Strait.

What is the Strait of Hormuz?

The Strait of Hormuz is a narrow shipping lane located between Iran and Oman. This narrow waterway, just 21 miles wide at its tightest, connects the Persian Gulf to the Gulf of Oman and the Arabian Sea. It may not look like much on a map, but it carries more than 20 million barrels of oil every single day. That's about a quarter of all global maritime oil trade.

It's not just crude oil, either. Around one-fifth of the world's liquefied natural gas (LNG) also moves through the strait, most of it coming from Qatar.

China, India, and South Korea are heavily dependent on oil shipped through the Strait of Hormuz, with these three nations (along with Japan) accounting for nearly 70% of the crude oil and condensate flowing through this critical waterway as of early 2026, according to the EIA.

Why does a narrow waterway halfway around the world have such a big impact on fuel prices?

The Strait of Hormuz is a critical chokepoint in global energy supply, with recent geopolitical developments bringing it back into focus. As tensions escalate, this narrow passage has become a major factor driving volatility in oil, diesel, and gasoline markets. Disruptions in the region have already pushed global energy prices higher and raised concerns about the stability of supply routes through the Strait of Hormuz.

Alternative Routes

According to the EIA, Saudi Arabia's state-run energy giant Saudi Aramco operates a crude oil pipeline that runs east and west from the Abqaiq oil processing center near the Persian Gulf to the port of Yanbu on the Red Sea. The UAE also has a pipeline that can bypass the Strait by linking onshore oilfields to the Fujairah export terminal on the Gulf of Oman. However, their combined spare capacity - around 2.6 million barrels per day - is nowhere near enough to cover the 20 million barrels that usually pass through. This lack of alternatives is exactly what makes Hormuz so critical and vulnerable.

Iran also maintains a pipeline and export terminal on the Gulf of Oman that allows shipments to avoid the Strait of Hormuz. Although the system is capable of moving around 300,000 barrels per day, volumes have been significantly lower. In the summer of 2024, exports through this route remained below 70,000 barrels per day, and cargo loadings stopped after September 2024, according to the EIA.

How is This Impacting Fuel Markets?

The disruption in the Strait of Hormuz is already being reflected in global energy prices and supply dynamics. Oil prices have surged to their highest levels since 2024, rising roughly 6-10% in recent days, while Brent crude has climbed into the low $80s per barrel. Analysts warn that prices could exceed $100 if disruptions continue. Diesel and gasoline futures have also increased, reflecting tighter supply expectations, and global shipping costs have reached record highs, with tanker rates exceeding $400,000 per day.

At the same time, supply constraints are building across the market. LNG production disruptions, including in Qatar, are tightening global gas markets, while refineries and production facilities across the Middle East have reduced output. In response, countries are actively seeking alternative suppliers outside the region.

Why This Matters for Fuel Buyers

For fuel-dependent businesses, events in the Strait of Hormuz directly influence pricing, availability, and overall market stability. Of course, the most direct concern is prices - analysts expect higher prices to persist as long as the Strait is closed, and possibly longer depending on how the Middle East conflict escalates.

For US markets, the severe price escalation also leads to market backwardation - meaning short-term prices are much higher than long-term futures prices. That's impactful for markets fed by long pipelines, such as the East Coast. Fuel takes 7-14 days to reach East Coast markets fed by the Colonial Pipeline, meaning shippers must now consider backwardation and potential losses from holding fuel for that period. The impact is limited pipeline shipments, which over time can result in tighter East Coast markets and higher prices.

This effect was most clearly seen during the early months of the Russia-Ukraine conflict, when Europe was cut off from Russian oil and diesel inventories plummeted. Backwardation climbed over $1/gal in April 2022, causing notable supply shortages for the East Coast. Currently, spreads are around 20-25 cents - still high, but not nearly as bad as in 2022. Depending on the duration of the conflict and the outages, traders will be closely watching this number to measure the impact on US supply markets.

What to watch next

The situation remains fluid, and market conditions will depend on several key factors. These include whether the Strait remains closed or partially restricted, the duration and scale of the regional conflict, the restoration of production and shipping activity, and the availability of alternative export routes such as pipelines or Red Sea shipments. If disruptions persist, analysts expect continued upward pressure on fuel prices and ongoing volatility across energy markets.