Hormuz closure triggers Asia’s urgent switch to US oil, 15-fold price gap upends traditional shipping routes

The "de facto closure" of the Strait of Hormuz is dismantling the traditional crude oil trade route from the Middle East to Asia at a rate far faster than the market expected.

Within the past 24 hours, navigational capacity in the Strait of Hormuz has further collapsed. Bloomberg data shows only 3 commercial vessels passed through the strait in the latest 24 hours, compared to the peak of 57 on June 24. Bloomberg analyst Michael McDonough pointed out that the number was still 7 the previous day and 11 on Saturday: "The speed of decline is astonishing." With hopes for a ceasefire dashed, surplus Middle Eastern supplies that had flooded the spot market now face interruption threats—supply chain security has replaced price as the number one variable in procurement decisions for Asian refineries.

According to CCTV News, on July 13 local time, U.S. President Trump stated that since the U.S. is protecting several wealthy Middle Eastern countries, it should receive compensation from those countries. He said a 20% fee would be charged on all transiting goods as "compensation." Based on current oil prices, the transit cost for a single VLCC supertanker is about $30 million, equivalent to about $16 per barrel, while Iran charged only about $2 million for a similar route early in the war, a roughly 15-fold difference.

A price gap of 15 times means that even rerouting to purchase oil from the US, Latin America, or West Africa over longer distances, the overall landed cost may be better than paying the "transit fee" for Middle Eastern oil. However, the market is generally doubtful whether this fee can actually be imposed—as an early member morning report commented, "There is no customs at sea." Imposing 20% means the US Navy would have to stop each ship, check the cargo, and estimate its value, which is itself another form of “blockade.”

From 57 to 3: The Shockwave of "De Facto Closure" of the Strait

The cliff-like drop in Hormuz Strait traffic caught the market off guard. Iran has publicly declared the southern channel of the strait “unsafe, unreliable, and prone to accidents,” and is attempting to stealthily move oil tankers out of the Gulf by disabling the Automatic Identification System (AIS) transponders.

On Tuesday, Brent crude soared 9.6% in a single day to $83.20 a barrel, and WTI rose to $80.

Henry Hoffman, co-manager of Catalyst Energy Infrastructure Fund, commented, "The market is overly optimistic about partial reopening, pricing it as the end of the crisis too early." Rachel Ziemba, adjunct senior fellow at Washington think tank Center for a New American Security, was even more direct: "The possibility of the region and the Strait of Hormuz returning to the old normal is actually zero."

Asia's Emergency Shift: US Crude Spot Returns to the Negotiating Table

Faced with a sudden narrowing of the Persian Gulf export channel, Asian refineries are making drastic adjustments to their procurement strategies. According to Bloomberg, at least three executives involved in US crude sales and Asian refinery procurement revealed that spot trading negotiations have restarted—just a few weeks ago, US crude procurement discussion had gone silent due to massive surpluses from the Middle East flooding the spot market.

Asian buyers are acquiring more crude from Latin America, West Africa, and the US to rebuild strategic reserves. US crude oil and product exports reached a historical record this spring. The route from the US Gulf Coast to East Asia takes about 30 to 40 days; freight and insurance costs are much higher than short-haul transport from the Persian Gulf, but as geopolitical risk premiums devour supply chain security, a long but guaranteed route is preferable to a short route that could be interrupted at any time.

30 Million vs 2 Million: 15-Fold Price Gap Breaks Traditional Route Economics

Trump packaged the 20% transit fee as the "guardian compensation," but the market quickly did the math. The transit cost for a single VLCC is about $30 million—equivalent to about $16 per barrel—which creates a 15-fold gap with Iran’s previous charge of about $2 million. Even excluding freight differences, the cost competitiveness of alternative sources has significantly increased.

The United Nations International Maritime Organization (IMO) stated after Trump’s post that it firmly opposes charging transit fees for straits used in international navigation, saying such practices "have no legal basis." Shipping industry officials also questioned the feasibility of the fee plan. The White House did not immediately provide more details on how it would be implemented or whether allies had been consulted.

Long-Term Game of Alternative Routes

Saudi Arabia, UAE, and Iraq have begun planning alternative pipelines and port export routes. According to Goldman Sachs, if all new and expanded projects materialize, by the end of 2027 more than 45% of pre-war Gulf oil exports could bypass the Strait of Hormuz. But building pipelines is not without costs—as Ziemba pointed out, these routes aimed at circumventing strait risk may themselves become targets for attack. In the short term, Asian refineries have no choice, and the restructuring of trade flows has only just begun.

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