Middle Eastern crude prices hit highest level since March as supply squeeze intensifies

Crude prices for Middle Eastern oil produced outside the Persian Gulf have climbed to their highest point since March, driven by mounting fears that supply disruptions in the region are far from over.

Spot premiums for Dubai crude roughly doubled to $12.74 per barrel during the week of September 8-14, while Oman crude premiums rose to $12.62 per barrel, their highest since late May. For context, these premiums sit on top of already elevated benchmark prices. Dated Brent crossed the $100-per-barrel threshold in early September for the first time since May, with some North Sea grades pushing close to $110.

The Strait of Hormuz bottleneck

The Strait of Hormuz has seen transit volumes drop dramatically since the escalation of the US-Iran conflict. Oil flows through the strait fell from roughly 20 million barrels per day to around 11.7 million barrels per day, a decline of more than 40%.

Middle East exports overall declined from approximately 19 million barrels per day in February to about 11.7 million barrels per day by March as the conflict took hold. While there was a brief period of easing earlier in the year, renewed hostilities in September, including threats and attacks targeting tanker routes, reignited the premium spikes that had begun to cool.

Asian refiners scramble for alternatives

Asian refiners have recently shelled out premiums of approximately $24 per barrel for US and West African crudes earmarked for December loading. This is particularly painful for refiners in China, India, Japan, and South Korea, which have historically relied on Gulf crude for a large share of their feedstock. Switching to longer-haul alternatives from the US Gulf Coast or West Africa means higher freight costs on top of already inflated spot premiums.

What is driving the September escalation

After a period where tanker traffic through the Strait of Hormuz partially recovered, September brought a fresh round of escalatory actions. Threats against commercial shipping and reported attacks on tanker routes have made insurers and shipowners nervous again, effectively re-imposing the risk premium that had briefly eased.

Implications for global energy costs

The OPEC+ alliance, which includes several members directly affected by the conflict, faces its own set of impossible choices. Spare capacity exists on paper, but getting those barrels to market through contested waters is the actual problem. A production quota increase means little if the tankers carrying the oil face military threats.

The $12-plus premiums on Dubai and Oman crude, combined with $24 premiums on alternative grades, paint a picture of a market where supply is genuinely constrained rather than merely anxious.