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Strait of Hormuz Escalation Tightens Oil and Diesel Squeeze
The US-Iran exchange of strikes narrows Strait of Hormuz traffic to a trickle while US diesel buffers hit 13 days. The risk event just got real.
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US and Iranian forces traded a second round of strikes overnight, narrowing the Strait of Hormuz to a single Omani route that has so far carried only four vessels under US Navy escort. Two oil tankers and two LPG carriers made the inbound crossing with their AIS on, according to Javier Blas. Commodity analyst Jeff Currie described the open lanes as “two little shipping lanes” that still allow only a trickle of traffic.
The escalation follows Iran’s drone strike on the Panama-flagged MT Kiku, a tanker carrying 2 million barrels of crude. The US responded by hitting 10 Iranian targets near the strait – drone storage, air defence, surveillance and minelaying sites. Iran retaliated by striking a US facility in Bahrain and setting another VLCC on fire.
Hassan Ahmadian, an associate professor at the University of Tehran, told Al Jazeera he expects further escalation because “the Iranians will not stop.” He argued that the US is trying to back out of the Memorandum of Understanding it signed, while still demanding Iran comply with its end of the deal.
The question that matters for commodity traders is how long the US can sustain this campaign. Larry Johnson, citing an oil-industry source with 35 years of experience, put the usable diesel supply at 13 to 18 days. That figure accounts for the fact that only 45% to 60% of headline distillate stocks are practically deliverable in a stress event. “The U.S. does not have a month of freely deliverable diesel in a stress event,” the source said.
The 13-day buffer is a national average. The Southeast is especially exposed because it depends on the Colonial Pipeline, a single point of failure that took six days to restart in 2021. A six-day outage now would consume nearly half the buffer.