THE NEW SUPREME LEADER
The new Supreme Leader of Iran, Mojtaba Khamenei, made his first public statement since taking power. He declared that the Strait of Hormuz must remain closed as a tool of pressure.
International Energy Agency also announced the largest release of strategic oil reserves in its history, while the U.S. Secretary of Energy, Chris Wright, admitted that the United States is not yet able to escort oil tankers through the strait.
Let’s take things step by step.
Mojtaba Khamenei assumed the role of Supreme Leader on March 9, after his father, Ali Khamenei, was killed in an Israeli strike at the start of the war on February 28. He is 56 years old, widely considered even more hardline than his father, and is believed to be hiding in a secret location as a likely target for both the United States and Israel.
Yesterday, in a message read by a presenter on Iranian state television, he made it clear that the closure of the Strait of Hormuz must continue as a way to pressure the West.
He also demanded the immediate closure of all American bases in the Middle East and warned that they would face attacks. At the same time, he promised revenge for those killed in the war.
There was no camera.
He did not speak directly.
But the market understood the message immediately.
Oil prices surged.
THE STRAIT REMAINS CLOSED
And this is where the real problem begins.
Since March 2, the Strait of Hormuz has effectively been closed. Iran’s Islamic Revolutionary Guard Corps has threatened any vessel attempting to pass through the narrow corridor between Iran and Oman. Tanker traffic has almost completely stopped.
Remember, roughly 20 million barrels of oil and petroleum products used to pass through this strait every single day. That represents about 20 percent of global oil consumption.
Now, according to the International Energy Agency, exports are below 10 percent of pre war levels.
And this is not just about oil.
Global supply of liquefied natural gas has also dropped sharply, with LNG shipments falling about 20 percent worldwide.
In the last two days alone, at least six oil tankers have been attacked in the Gulf and inside the strait. Last night, three ships were struck in separate incidents. Two of them were hit just five nautical miles from the port of Basra in Iraq.
Insurance coverage for tankers in the region has essentially disappeared.
And without insurance, shipowners simply will not take the risk.
THE 400 MILLION BARRELS
Yesterday, the International Energy Agency announced the largest release of strategic oil reserves in history: 400 million barrels of oil.
The United States alone will contribute 172 million barrels from its Strategic Petroleum Reserve.
In total, IEA member countries hold more than 1.2 billion barrels in emergency reserves, along with another 600 million barrels in industry stocks.
The goal is to offset part of the supply shock created by the closure of the Strait of Hormuz.
According to the IEA, exports from the Gulf are currently below 10 percent of pre war levels. At the same time, major producers like Saudi Arabia, Iraq and the United Arab Emirates have begun reducing production because they cannot export their oil and storage facilities are quickly filling up.
Those 400 million barrels equal roughly four days of global oil production, so they cannot fully replace the lost supply.
But the message is clear.
The international community is reacting in a coordinated way, and there are still large reserves available.
Ultimately though, the real solution is simple: restoring shipping through the Strait of Hormuz.
ESCORTING THE TANKERS
Yesterday, U.S. Energy Secretary Chris Wright told CNBC that the U.S. Navy is not yet ready to escort oil tankers through the strait.
The reason is simple. Right now, military resources are focused on destroying Iran’s offensive capabilities.
Remember, Donald Trump had promised on March 3 that the U.S. Navy would begin escort operations “as soon as possible.”
On Tuesday, Wright even posted on X that the Navy had successfully escorted a tanker. That claim was later denied by the White House.
The post was deleted, but not before it temporarily sent oil prices down more than 17 percent.
The good news is that Wright now estimates tanker escort missions will likely begin before the end of the month.
He even had meetings scheduled today at the United States Department of Defense specifically to discuss this issue.
According to him, this is a short term disruption, and the operation is expected to last weeks, not months.