Brent Higher as crude prices swing on the latest developments in the war in the Middle East. On Monday, the price dropped below $107 per barrel after OPEC raised production quotas over the weekend, and US President Donald Trump announced Project Freedom, a program to “guide” ships through the Strait of Hormuz.
That program, called “Project Freedom”, started with an escalation of the conflict, leaving traders worried that the ceasefire between Iran and the US would come undone. Brent rose to almost $115 amid reports of attacks on ships, including warships. However, after the dust settled, a new issue appears to be emerging: The Strait is not reopening quickly.
The Ceasefire Is Still In Place
After Trump announced his plan for the US Navy to facilitate ships passing through the Strait, markets were not surprised when Iran asserted control over the waterway. Crude prices jumped amid knee-jerk reactions as various entities in the region claimed attacks, while others denied them.
Iranian state media reported attacking US warships, but CENTCOM denied this. For its part, the US Navy said it sank six fast attack craft, with Iran denying the loss of any boats. There were reports of a ship coming under attack from boats, but later Iranian officials said it was just an inspection. There was an explosion on a South Korean vessel anchored in UAE waters, but it hasn’t been confirmed whether it was struck by a missile. UAE officials said that Iran launched multiple ballistic missiles and drones at the country and closed its airspace, while Iranian officials denied having done so. All in all, the situation remains unclear, but neither side has officially said the ceasefire is over, allowing markets to take a more optimistic view on Tuesday.
Some Ships Making it Through
Two US Navy ships entered the Persian Gulf on Monday and provided cover for two US-owned commercial ships to transit the Strait. While analysts show this demonstrates a proof of concept that the initiative can work, so far, few ships have taken up the offer. Around 120 ships per day transited the Strait before the war began. Analysts forecast that the “Project Freedom” framework could allow up to 30 ships per day.
Markets are not spiking, but crude prices remain elevated while gold stays under pressure, as traders await the outcome. Reports suggest as many as 80 ships, including some crude tankers, are lining up near the Strait, potentially about to exit. However, it seems that without Iranian cooperation, it will be a long time before full transit through the Strait is restored. Additionally, there is no provision for ships to return to take on new cargo once they leave.
Markets Waiting on Developments, Alternatives
After the latest peace plan proposals were rejected on Monday, there are currently no plans for US and Iranian officials to meet. Both sides seem to think they can wait the other out, with Trump saying late Monday that he expected the war to last another two to three weeks.
Major global shippers like Maersk have said the situation remains unchanged and have no plans to resume shipping through the Strait as of Tuesday. Instead, shipping companies are looking to construct alternative routes, such as MSC developing a shipping program to the Red Sea and then carrying goods by truck across the Arabian Peninsula. The relatively small move in crude prices amid reports of explosions in the region suggests markets are continuing to adjust to a new normal in which the Strait remains closed for an extended period.
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