Iran's Hormuz draft plan lifts WTI 3.5% on supply fears

Iran's draft plan to restrict Strait of Hormuz transit for US and Israeli ships pushed WTI crude up 3.5% Thursday, reviving supply fears in a waterway carrying about a fifth of global oil.

WTI crude jumped 3.5% to $77.83 a barrel Thursday after Iran published a draft plan to ban US and Israeli ships from the Strait of Hormuz, reviving supply concerns in a chokepoint that carries about a fifth of the world's oil.

"Higher oil prices signaled that a further inflationary impulse from energy and the situation in the Middle East could not be discounted, sending US dollar higher and government bonds lower," Westpac said in a note.

Brent crude, the international benchmark, rose about 4% to $82.72 a barrel. The draft, published by Iran's Fars news agency, would bar vessels linked to the US, Israel and other countries Tehran deems hostile, impose fines of up to 20% of a ship's cargo value, and deny passage to nations blamed for harming Iran until compensation is paid. The document remains under expert review and has not been approved.

The stakes are high for global energy markets. The Strait of Hormuz handles roughly 20% of global oil consumption, and prices had fallen about 8% this week after President Donald Trump, Treasury Secretary Scott Bessent and Secretary of State Marco Rubio said a deal was near to increase traffic through the strait. If the draft becomes policy, supply disruption risk rises; if talks with Oman produce a transit framework, prices could retrace.

The proposed legislation, dubbed the "Strategic Action for the Security and Sustainable Development of the Strait of Hormuz and the Persian Gulf," is under review by parliament's National Security and Foreign Policy Committee, according to Tehran's semi-official Tasnim News Agency. Abbas Salimi, a member of parliament's presiding board, told the IRGC-aligned outlet that lawmakers are reviewing the draft before it moves forward. Under the proposal, ships belonging to the US, Israel and other nations Tehran designates as hostile would be barred from transiting the waterway, and military and civilian cargo accused of supporting Israel would be prohibited. Violators could face fines of up to 20% of a ship's cargo value, which could amount to tens of millions of dollars. The US is likely to reject the law if passed, as Washington and most of the world consider the strait an international waterway open to ships of all countries.

Supply risks extend beyond Hormuz

Adding to supply concerns, Ukraine struck two of Russia's major oil refineries overnight — Yaroslavl/Yanos and Bashneft's Novoil facility — and US imports of Saudi crude dropped to zero in July for the first time since 1985, according to a note by UOB. A tanker also reported hearing two explosions off the coast of Oman while transiting Hormuz, according to a Wednesday incident report from the United Kingdom Maritime Trade Operations Centre. The crew and vessel are safe.

Oman talks offer a counterweight

The legislation comes as Iran and Oman negotiate a separate framework for managing maritime traffic through the strait, possibly creating one temporary, central shipping lane jointly managed by the two countries. According to media reports, inbound traffic would transit Iranian waters while outbound traffic would go through Omani waters, though a deal has not yet been announced. Trump said in the Oval Office, in a reference to Iran, that he thinks the war in Iran will end "pretty soon."

The last time the strait faced a comparable threat was during the 2019 tanker attacks, when Brent spiked above $70 before retreating as the US and Iran avoided direct confrontation. A similar dynamic could play out now: the draft plan is a negotiating lever, but its implementation would depend on Iran's willingness to risk a wider conflict that could cut off its own oil exports.

This article is for informational purposes only and does not constitute investment advice.