Oil prices extend advance as traders gauge US escort plan for Strait of Hormuz

Oil prices extended their gains post fresh attacks in the Middle East as traders gauged a US plan to escort and insure tankers passing via the Strait of Hormuz, with traffic in the crucial waterway all but halted.

West Texas Intermediate was above $75 a barrel post rallying 11% across two days, the biggest rise in four years. Brent ended near $81.

US President Donald Trump on Tuesday said the US Development Finance Corporation will offer insurance to ships to help ensure the flow of energy and other trade, providing a naval escort "if necessary".

The US move follows signs of mounting disruption for producers in the region from the closure of the waterway. Iraq — the second-biggest OPEC producer — has begun closing the Rumaila field, the nation’s biggest, and the West Qurna 2 project, according to people familiar with the matter. When complete, the halts will stop a majority of the country’s output.

The global oil market has been pitched into turmoil by the US and Israeli war against Iran, with strikes and counter-strikes spreading across the Middle East. The war has halted trade, driven producers to lock in output, and forced the closure of a major refinery and gas-export plant. Surging prices of crude, gas and petroleum products have raised the specter of a global energy crisis.

Hostilities continued into Wednesday, the fifth day of the conflict. The Israel Defense Forces said they had begun a “broad wave of strikes” targeting Iranian launch sites, aerial defense systems and infrastructure.

The Strait of Hormuz is a narrow waterway that connects the Persian Gulf to the Indian Ocean, with Iran to its north. It’s an essential conduit for the global energy trade, carrying about a fifth of the world’s oil and gas. Since the outbreak of the war last Saturday, tankers have shunned the chokepoint given the mounting risks, including threats from Tehran against vessels.

“No matter what, the United States will ensure the FREE FLOW of ENERGY to the WORLD,” the US president posted on social media, without elaborating on the insurance mechanism to be offered. The DFC generally exists to mobilize private capital for developing nations and de-risk investments.

After Trump’s comments on the insurance and escort plan, Tehran reiterated its warning to vessels in the area. The Strait of Hormuz is under wartime conditions and vessels sailing through it “could be at risk from missiles or rogue drones,” the Islamic Revolutionary Guard Corps said in a statement cited by the semi-official Fars news agency. Iran has struck more than 10 tankers with various projectiles for ignoring its warnings, it added.

Away from the Middle East, an industry report showed US crude stockpiles rose 5.7 million barrels last week. Official data on the holdings — which swelled by almost 16 million barrels in the prior week — are due later Wednesday.

With inputs from Bloomberg

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