Strait Of Hormuz Risk Premium Returns Amid Growing US-Iran War Fears, Says Analyst

(MENAFN- Khaleej Times) Insurance premiums linked to shipments passing through the Strait of Hormuz are back again amid escalating military tensions between the US and Iran, although the UAE possesses“meaningful bypass infrastructure” should geopolitical risks intensify, analysts say.

US President Donald Trump has once again hinted at possible military action against Tehran as the two sides resumed indirect talks mediated by Oman.

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The US military build-up in the Middle East has now reached a level that gives Washington the option of launching a strike on Iran.

“The vulnerability lies not only in Iran's own exports but in the region's dependence on the strait. Only Saudi Arabia and the UAE possess meaningful bypass infrastructure,” Saxo Bank said in a note released on Thursday.

Concerns over a potential US military strike pushed oil prices higher on Thursday, with both Brent and WTI crude gaining more than 1.4 per cent to $71.35 and $66.15 per barrel, respectively, by the afternoon.

According to the US Energy Information Administration, around 20 million barrels of oil pass through the Strait of Hormuz daily – accounting for nearly one-fifth of global supply.

Ole Hansen, Head of Commodity Strategy at Saxo Bank, said that while crude began the year near $60 and moved to around $65 following the removal of Venezuela's Maduro regime, the latest rally above $70 is largely being driven by heightened Middle East supply-disruption risks rather than any shift in underlying fundamentals.

“With that in mind, the current geopolitical 'insurance premium' appears to be in the $5-7 range. The premium is not closer to $10-$12 because demand remains resilient, while an estimated 400 million barrels of sanctioned oil remain afloat seeking buyers. These barrels, together with Chinese buying for strategic stockpiles, have helped tighten prompt availability without signalling outright scarcity,” he said.

In the unlikely event that a US-Iran agreement results in sanctions relief, Hansen warned that crude prices could retreat towards the low $60s.

“Such a move would likely be amplified by speculative selling, given that funds have accumulated sizeable long positions in WTI and Brent over the past month,” he added.

Maintaining enough supply

Hansen noted that the UAE's Abu Dhabi Crude Oil Pipeline transports oil from Habshan to Fujairah, outside the Gulf, while Saudi Arabia's East-West Petroline allows crude to move from Abqaiq to the Red Sea port of Yanbu.

“Combined, these routes could redirect several million barrels per day, but practical spare bypass capacity is likely around 2–3 million barrels per day - far short of the roughly 20 million barrels per day that normally transit Hormuz,” he said.

“This leaves the global market exposed: even partial disruption would force rerouting, insurance spikes and logistical bottlenecks long before a full blockade becomes reality.”

Across the Gulf region, the UAE and Kuwait export around 2–3 million barrels per day each through the strait, Iraq about 3.5–4 million bpd, Iran around 2–2.5 million bpd, and Saudi Arabia roughly 6 million bpd.

Anis Sajan, Vice Chairman of Danube Group, said the Strait of Hormuz remains a vital artery for global trade, particularly for GCC economies that rely heavily on uninterrupted maritime movement.

“With rising tensions between Iran and the US and the possibility of conflict, concerns around supply chain disruptions are real. While the recent temporary closure for military drills was brief, any prolonged shutdown due to war would have cascading effects,” he said.

“Any extended disruption would impact all goods transported via this route, leading to shortages as well as price increases. For the building materials sector, even short disruptions can affect freight costs, supply timelines and project execution.”

“We have planned our inventory carefully to withstand short-term challenges and continue meeting strong real estate demand. It is equally important for smaller players to maintain adequate stock to navigate any potential disruptions,” he added.

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