Energy Musings - March 5, 2026

The Iranian war has disrupted the global oil and gas market. The problem is that Iran has sufficient weapons to damage ships passing through the Strait of Hormuz. A solution will take time.

Lessons From Strait Of Hormuz

Saturday night’s joint U.S. and Israeli military attack on Iran spooked global energy markets. The magnitude of the spooking was initially unknown because financial and commodity markets were closed. It was safe to assume that oil and natural gas prices would jump when markets opened Sunday night – the question was by how much. The price spike was expected because 20% of the world’s oil and LNG supply passes through the Strait of Hormuz. Equally importantly, a quarter of that oil flow goes to China.

Oil prices had been climbing at the end of the week in anticipation of possible attacks. From $67 a barrel for WTI crude oil, would they jump to $75? Or maybe, traders would send them into the $80s. Some analysts speculated that if the Strait of Hormuz were shut down, preventing the 20 million barrels a day of oil output from reaching the market, $100 a barrel or more was viewed as a distinct possibility.

With the outbreak of hostilities, ships stopped moving, not willing to risk being caught between two warring parties. Insurance pools immediately imposed war-risk premiums or ceased coverage altogether. Ship owners and cargo buyers were unwilling to sail without insurance. Reportedly, war risk insurance premiums increased 12fold. Sunday morning, Reuters reported, based on a Logistics News article relying on data from MarineTraffic, that “Shipping data revealed that at least 150 ‘tankers’, including LNG and crude vessels, were anchored in the open Gulf waters beyond the Strait of Hormuz…”

Ships were located in open water off the coasts of major Gulf oil producers, such as Iraq and Saudi Arabia. LNG carriers were seen off Qatar. The vessels were anchored in the exclusive economic zones (EEZs) of Gulf oil producers, such as Kuwait and the United Arab Emirates. Dozens of cargo ships were also observed in those EEZs.

MarineTraffic data showed at least 100 other tankers anchored along the UAE coast and Omani anchorage points, on the other side of the Hormuz, along with dozens of cargo vessels.

Iran declared the Strait of Hormuz closed. However, the U.S. said that this was untrue, as there had been no notification to international shipping authorities of the closure. Without insurance, however, it was effectively closed.

The Strait of Hormuz is the leading chokepoint in the oil industry.

The Strait of Hormuz is about 104 miles long, with a width varying from about 60 miles to 24 miles. Ships are most at risk when traversing the narrowest portion of the strait. With vessels traveling in both directions, maneuvering is difficult, making them vulnerable to attack. Iran has used mines and harassment to disrupt shipping traffic in the past.

In the fog of war, the Iranian military fired on an Iranian-flagged tanker. It has also hit a U.S.-flagged oil tanker supplying military vessels when Iranian missiles hit the port in Bahrain.

Passing through the Strait of Hormuz is an interesting journey. Some years ago, we were on a cruise from Dubai to Abu Dhabi, Sharjah, Fujairah, and then to Muscat, Oman, before returning to Dubai. We passed through the Strait of Hormuz twice. On the first pass out of the Persian Gulf, two Iranian naval speedboats raced toward the ship. This was the typical form of harassment we had read about. When they neared our ship, they slowed and circled us before returning to shore. Shortly afterwards, the ship was buzzed by a Middle Eastern fighter jet, but we could not determine the nation. Our captain commented that a member of a royal family was in control. How did he know that we had no idea? Was it a Saudi royal family member, or from one of the emirates?

Both actions were designed to send a message. We are not sure why the Iranians could not distinguish between a cruise ship and an industrial vessel. That message was less clear than the fighter jet’s. We guess it is possible that the Iranians were using our ship as a training exercise.

When oil trading opened in Asia on Monday (Sunday night in the U.S.), WTI and Brent oil prices jumped about 8% to nearly $75 and $82, respectively. Prices traded lower during the financial day, but then jumped higher on Tuesday when the prospect of the strait’s closure and damage to oil and LNG shipping and processing facilities caused by Iran’s retaliation against Gulf nations became clear.

Qatar, a major global LNG producer, declared force majeure due to damage to its processing and loading facilities. The extent of the damage and the duration of the terminal’s closure are unknown. The nation can produce and ship 80 million tons of LNG annually, but none is moving now. The impact of losing Qatar’s significant LNG output was a spike in natural gas prices in Europe and Asia, with a much smaller rise in the U.S. Henry Hub price.

The LNG situation was further clouded when a suicide drone hit a Russian LNG carrier in the Mediterranean. Why it was attacked is a mystery.

The Dutch TTF price, the benchmark European gas price, rose by 70% over two days. The price reached €54/megawatt-hour (MWh) ($18.60/million British thermal unit) (MMBtu) on March 3. In Asia, Platts JKM, the spot LNG benchmark price, soared 96% over the same two days. The JKM reached $21/MMBtu for May’26 delivery. Analysts suggest that the extreme response of the JKM reflects Asian buyers leaning on the spot market to replace lost Qatari supply during a prolonged Strait of Hormuz closure. For reference, Henry Hub prices at that time were just about $3 per thousand cubic feet of natural gas.

In response to spiking oil and LNG prices, the U.S. has proposed two steps. First, the U.S. proposed that Navy ships escort tankers, gas carriers, and cargo ships. Secondly, President Trump wants the U.S. to provide insurance for ships transiting the strait. The mechanics of such a move are unclear. We assume the insurance coverage would only last for the brief time ships were actually in the strait, with normal ship insurers resuming their coverage once the vessel was clear. Would the coverage be limited to the ship, or to the ship and its cargo?

Energy Secretary Chris Wright told Fox that our Navy would not escort commercial ships through the Strait of Hormuz for a while. As he noted, they are busy with other priorities, but they should be available for escort duty soon. On the insurance issue, Trump is proposing that the U.S. act as a reinsurer for commercial ship insurance policies. This might only involve creating an agreement that the respective parties would sign, without requiring an insurance fee that would further increase the cost of operating tankers and the final cost of the cargo. That would take some inflationary pressure out of the oil market.

An unknown issue is whether the insurance coverage would disregard the vessel’s flag and the destination of its cargo. The Iranian attacks are part of a broader U.S. geopolitical agenda to fracture the network of nations within China’s sphere of influence. Does the U.S. insure ships hauling Iraqi crude to China? The chances of ships loading Iranian crude oil are slim.

Fleet registration data compiled by the U.S. Maritime Administration, as of December 2025, showed the U.S. with 190 oceangoing ships. The fleet includes 76 oil tankers, 4 bulk carriers, 58 container ships, and 52 cargo vessels. The cargo fleet comprises 7 container-Roll On Roll Off, 5 Roll On Roll Off, 22 vehicle carriers, and 18 general cargo ships.

Another ship data source is the UN Trade & Development Commission. As of 2024, it shows a global vessel fleet of nearly 109,000 vessels, of which 3,500 are U.S.-flag. China’s fleet is 2.7 times larger than the U.S. In the case of tankers, China has 23,5 times more than the U.S. The UN data show roughly 3,300 “other” ships, primarily U.S.-flag vessels operating in coastal waters.

The U.S. is fortunate to be self-sufficient in oil and natural gas. However, it still depends on ships to bring in specific oil supplies and to handle oil and gas exports. Currently, the U.S. exports 24.6 billion cubic feet per day (Bcf/d), of which 9.5 Bcf/d moves through pipelines to Canada and Mexico. The balance of 15.1 Bcf/d is exported as LNG to customers worldwide. The world reportedly has roughly 700 LNG carriers, but none are U.S.-flagged. The LNG industry is projected to more than double its export volumes by 2030, but our industry is at risk should hostile shippers boycott the U.S. and refuse to allow its gas carriers to handle U.S. exports.

Although the U.S. has 76 oil tankers, many of them are committed to hauling oil from Alaska to domestic refineries. Another portion of the fleet is dedicated to moving refined petroleum products from our refineries to markets in the U.S. and to our territories in the Caribbean and Southeast Asia. Most people are not aware of how much oil and refined petroleum products are imported and exported daily. In 2025, the U.S. imported 7.9 million barrels per day (mmb/d) and exported 10.7 mmb/d. Approximately 63% of our imports come from neighboring Canada and Mexico by pipeline. The balance arrives by ship.

For oil exports, roughly 20% goes to Canada and Mexico by pipeline. The balance is exported by ship. As we have increased our domestic oil production, the U.S. has become a meaningful exporter, creating a profitable business opportunity for the domestic oil industry. A lack of ships would create a crisis for the industry, as available pipeline capacity and tank storage would quickly overflow. One only needs to remember the fear of storage shortage when the nation shut down during the 2020 pandemic. That fear helped drive oil prices into negative territory for the first time. Does anyone remember when people seriously thought that swimming pools would be used to store oil?

The lesson of the Strait of Hormuz is that unforeseen events can easily disrupt global logistics and supply chains. Shipping is a critical component for keeping supply chains working. The U.S. is vulnerable because we have few ships, so we have little to no control over our supply chain. The Maritime Action Plan needs to receive high priority from our legislators and the administration.