Shipping through Hormuz Drops, Tensions Mount: Where Do Oil Prices Go?

Vessel traffic through the Strait of Hormuz has fallen sharply this week even as markets closely watch Iran-Oman talks on a potential management framework for the waterway. At the same time, Houthi threats continue to constrain Red Sea routes, recent attacks have kept insurance and freight costs elevated, and Saudi Arabia is deepening discounts on crude sales to Asia. Oil prices remain volatile in the low-to-mid $80s for Brent, with analysts divided on the path ahead depending on whether flows normalize.

Strait of Hormuz Traffic Plummets

Shipping traffic through the Strait of Hormuz dwindled to just 33 vessels from Monday to Thursday this week, compared with 50 in the prior week period, according to Kpler data cited by Reuters. On Thursday, only four vessels transited, including one very large crude carrier (Nissos Kea) carrying about 2 million barrels of Iraqi Basrah crude. Just six crude oil tankers have exited the strait so far this week, while 21 vessels entered—mostly via the Iranian-controlled northern route.

Pre-conflict norms saw roughly 130–140 vessels per day. Current volumes remain a fraction of that, with many operators reluctant to enter amid ongoing risks of attacks, mines, and insurance restrictions. Some Chinese and Indian refiners have sought tankers for discounted Iraqi barrels at Basrah, but few fixtures have materialized due to owner caution.

Red Sea Traffic Status and Recent Attacks

Red Sea / Bab el-Mandeb traffic has partially stabilized after a sharp drop following the mid-July Houthi blockade declaration targeting Saudi-linked shipping, but volumes remain well below normal. Commodity vessel transits fell by around 24% initially; tanker flows hit multi-month lows, with many operators using dark AIS (transponders off), rerouting via the Cape of Good Hope (adding ~25 days), or shifting to Suez/SUMED pipeline options and Yanbu loadings.

On Thursday (August 6), Bab el-Mandeb recorded 26 vessel transits (up from 19 the prior day; LSEG counted 28), showing some recovery as shipowners adapt. Saudi crude continues to move via Yanbu and alternative routes, though at higher cost and with delayed deliveries.

New attacks in the last 48–72 hours underscore persistent risks:

• August 5: Houthis claimed a ballistic-missile strike on the Saudi-flagged products tanker NCC WAFA off Yanbu in the northern Red Sea (the eighth Saudi-linked tanker targeted since the blockade; independent confirmation limited).
• August 5: UKMTO reported a tanker hearing two explosions near the Strait of Hormuz approaches; the vessel aborted transit with crew safe and no damage confirmed.
• August 4: India-flagged cargo vessel Faize Noore Oliya struck by an explosives-laden boat ~13 nm south of Al Hudaydah, Yemen; the vessel sank, all 14 crew rescued.
• August 4: Liberia-flagged bulk carrier Minoan Pioneer struck by an unidentified projectile ~20 nm northeast of Khasab, Oman (Hormuz vicinity); engine-room issues reported and one seafarer unaccounted for.

Earlier late-July and early-August incidents (including an LNG carrier hit exiting Hormuz) have kept threat levels elevated.

Iran-Oman Framework: Control That “Won’t Fly”

Iran and Oman are advancing a proposed arrangement for shipping routes through the Strait of Hormuz. Details emerging include temporary corridors (initially 1–3 or 2–4 months), with inbound and outbound lanes partly through Iranian waters near Larak Island, a joint coordination center, and Iran retaining primary roles in security, de-mining, and maritime services. Temporary routes near Iran and through Omani waters would adjust from the long-standing Omani-waters preference. Iran frames this as establishing “Iranian arrangements” and dominance, while seeking additional U.S. concessions (lifting the naval blockade on Iranian ports, sanctions relief, etc.) before full reopening.

President Donald Trump has repeatedly rejected any framework that grants Iran (or Oman) effective control. He has stated the strait is international waters, “nobody’s going to control it,” and the U.S. will “watch over it.” Earlier comments included sharp warnings toward Oman. As of August 6–7, Trump described the strait as “sort of open right now” under U.S. Navy blockade influence, expressed optimism that Iran “can’t go much longer,” and noted residual risks of mines or attacks. Reports of a possible short-term U.S.-Iran-Oman understanding have circulated, but Iran insists its primary talks are with Oman, and any deal formalizing Iranian oversight faces strong U.S. and Gulf opposition.

Saudi Arabia Deepens Asia Discounts: Offsetting Tanker and Insurance Costs

Saudi Aramco has continued cutting Official Selling Prices (OSPs) for Asia. For September loadings, Arab Light was set at $2.00 per barrel below the Oman/Dubai average (a further 50-cent cut from August’s already deep $1.50 discount). This marks the lowest level since June 2020 and follows an $11/barrel August cut—the largest in more than two decades.

Yes, these discounts help offset elevated tanker charter rates, war-risk insurance premiums, and longer voyage times caused by Hormuz and Red Sea risks. Loading inside the Gulf (e.g., Ras Tanura) carries significantly higher freight and insurance costs than alternatives outside the strait (such as UAE ship-to-ship transfers at Sohar). Competitors from Iraq, Kuwait, and the UAE have offered steeper effective discounts or safer logistics, forcing Saudi Arabia to compete aggressively to defend Asian market share while exports run below normal capacity. Asian refiners had explicitly pressed for relief on these higher delivery costs.

What Analysts Are Saying About Oil Prices

Brent crude traded in the low-to-mid $80s on August 7 (around $82–86 depending on the session), with WTI near $78. Prices have retraced from higher levels seen during sharper escalations earlier in the conflict.

Analyst views vary with assumptions on Hormuz normalization:

Reuters July poll of 31 analysts: Brent average $85.22/bbl for 2026 (up slightly from the prior month); WTI $80.14. Geopolitical risk premium expected to persist into H2.

ANZ (Richard Yetsenga): Roughly $80 if the strait reopens more fully; support in the $90s if disruptions continue. The market struggles with the binary open/closed risk.

TD Economics: Near-term upside risks; prices expected to moderate to the low $80s by year-end 2026 and into the $70s in 2027 as flows recover and inventories rebuild (base case assumes eventual diplomatic progress).

BMI (Fitch Solutions): Dated Brent average $86 for 2026 and $71 for 2027 under a “messy negotiations” scenario with gradual Q4 normalization.

Earlier consensus ranges (June–July polls and bank notes) spanned mid-$70s to over $100 depending on duration of disruptions, with many now clustering in the $80–90 zone for the balance of 2026 if partial recovery occurs, and lower thereafter amid potential surplus.

Most see elevated volatility through Q3 as talks continue and attacks persist, with downside if a workable transit framework emerges and upside if the dual chokepoint pressures intensify.

Oil Outlook

Shipping volumes through Hormuz remain depressed and Red Sea traffic only partially recovered, keeping freight, insurance, and delivery costs high. The Iran-Oman discussions offer a potential path to more predictable transit but clash with U.S. insistence on open international waters without Iranian dominance. Saudi price cuts are a direct response to these logistics penalties. Oil prices are likely to stay sensitive to every transit data point, attack report, and diplomatic signal in the coming weeks. A durable reopening would ease the risk premium; continued dual-corridor friction would support higher prices and force further adaptations by producers and shippers.

Watch for Friday Afternoon short selling of oil, and see what that does to the gasoline, diesel, and jet fuel markets… wait for it… nothing, as they pay for physical delivery of oil that is currently running at $120 per barrel, depending on where you buy it in the world.

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