All eyes on what Iran does to oil traffic through Strait of Hormuz

Risk premium already edges up to $8 taking oil price to mid-70S

- BY K RAVEENDRAN

Israel's strike against Iran has reignited a familiar tension in global energy markets, sending oil prices climbing into the mid-$70 per barrel range.

The impact is not just visible in the numbers, but in the broader nervousness sweeping across energy trading floors and geopolitical circles alike. At the heart of this movement lies the so-called "geopolitical risk premium" the extra cost per barrel that markets price in when a key oil-producing region teeters on the brink of conflict. That premium has now risen to about $8 a barrel, a level surpassing even the acute flashpoints of April and October 2024, when Israel and Iran directly exchanged strikes for the first time in decades.

This escalation has naturally drawn intense scrutiny, not only for the possibility of a broader military conflict but also for its potential to derail the delicate logistics of global oil supply. Among the many scenarios being modelled by analysts and strategists, one stands out as the most consequential: whether Iran will target the Strait of Hormuz. This narrow waterway, separating the Persian Gulf from the Gulf of Oman, has long been considered the most critical chokepoint in the global oil trade. Some 12 million barrels of crude pass through it daily more than 20 percent of global consumption with refined products pushing that number closer to 20 million barrels per day. Over 80 percent of this volume is Asia-bound, underscoring the strait's indispensable role in maintaining the energy lifelines of the region's largest economies, from India and China to Japan and South Korea.