Oil prices surge over 7% as US rejects Iran's de-escalation proposal

The standoff in the Strait of Hormuz intensified Wednesday, sending crude prices soaring after the U.S. rejected an Iranian proposal to end the crisis and Tehran threatened an “unprecedented” military response.

U.S. President Donald Trump on Wednesday rejected an Iranian offer to reopen the Strait of Hormuz before negotiating on its nuclear program, causing international crude oil futures to jump more than 7 percent on fears of a prolonged supply disruption.

"The continued American maritime piracy and banditry in the form of so-called 'naval blockade' will soon be met with 'practical and unprecedented military action'," an unnamed senior Iranian security official told Iran's Press TV.

The rejection sent West Texas Intermediate crude futures surging to over $107 a barrel, a daily gain of more than 7 percent. The U.S. naval blockade, in place since mid-April, has halted most of Iran's 1.71 million barrels per day of exports, forcing the nation to turn to improvised and floating storage solutions as its onshore facilities approach their limits.

The deadlock raises the risk of a direct military confrontation in the world's most critical oil chokepoint, through which 20 percent of global supply passes. While the U.S. sees the blockade as its main leverage to force nuclear concessions, Iran may be forced to cut production within weeks, potentially damaging its oil fields and escalating the conflict.

US Maintains Hardline Stance on Blockade

President Trump stated the naval blockade is "in some ways more effective than bombing" and that he would not relinquish the pressure until a deal dismantling Iran's nuclear capabilities is reached. "They want to make a deal. They don’t want me to have the blockade. But I’m not willing to do it because I don’t want them to have a nuclear weapon," Trump said in an interview.

The White House has reportedly instructed departments to prepare for a long-term blockade as a primary pressure tactic. This was reinforced by a post on Trump's Truth Social platform showing a modified image of himself with the caption "NO MORE MR. NICE GUY!" and a message urging Iran to "get smart soon."

According to media reports, U.S. Central Command has also prepared plans for a "brief and forceful" military strike on Iranian infrastructure, intended to break the negotiating stalemate should the blockade fail to produce a breakthrough.

Iran Nears Oil Storage Capacity Limits

The U.S. blockade is creating a severe logistical crisis for Tehran. With exports of 1.71 million barrels per day (bpd) in April effectively cut off, Iran is rapidly running out of places to store its crude. Data and analytics firm Kpler estimates Iran could exhaust its onshore storage capacity in as little as 12 to 22 days.

As of April 20, storage tanks at Kharg Island, the export terminal for 90 percent of Iran's crude, were already 74 percent full, according to the Columbia Center on Global Energy Policy (CGEP). To cope, Iran is resorting to "junk storage," using old sites and improvised containers, and has deployed tankers as floating storage, according to reports from The Wall Street Journal and satellite imagery analysis.

While analysts at Kpler and CGEP suggest any production cuts would be gradual, a forced shutdown risks long-term damage to Iran's oil reservoirs. The last time a major supply disruption occurred in the Strait of Hormuz during the 1980s "Tanker War," oil prices more than doubled over a two-year period, highlighting the severe economic stakes of the current standoff.

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