With Hormuz, Red Sea and Black Sea all at risk, Brent’s path to $100 is getting shorter
Crude oil has staged one of the sharpest monthly reversals in recent memory. After Brent fell below $70 and WTI approached $67 as the ceasefire-driven supply recovery erased five months of conflict premium in a matter of weeks, both benchmarks have retraced aggressively. Brent is trading above $93 today, climbing for a fourth consecutive session, while WTI is above $86, with both up roughly 27 per cent and 24 per cent respectively in July. The war premium that markets spent six weeks unwinding has returned and this time its geographic footprint has expanded materially beyond the Strait of Hormuz.
The multi-front disruption profile is the defining feature of the current escalation and distinguishes it from every prior phase of this conflict. Hormuz remains the primary chokepoint under stress, with US-Iran military exchanges now extending into a tenth consecutive day and shipping data yet to show a full recovery in transit volumes. But the risk geography has widened in two directions simultaneously. Iran-aligned Houthi forces in Yemen have declared a maritime embargo against Saudi Arabia, prompting at least three tankers carrying Saudi crude bound for Asia to reverse course in the southern Red Sea, raising the prospect of sustained strain on the Bab el-Mandeb Strait. Separately, drone strikes on the Caspian Pipeline Consortium terminal on Russia’s Black Sea coast disrupted Kazakhstani export loadings, introducing a third simultaneous chokepoint into the supply risk calculus.
The Saudi dimension warrants particular attention. The Yanbu export terminal on the Red Sea had functioned as Riyadh’s primary Hormuz bypass throughout the conflict, routing crude through the East-West Pipeline to avoid the blocked strait and providing a critical relief valve for the physical market during the acute disruption phase. That workaround is now directly threatened. All crude departing Yanbu must transit the Bab el-Mandeb to reach Asian and European buyers, meaning a sustained Houthi interdiction of Red Sea shipping effectively eliminates both of Saudi Arabia’s main seaborne export routes simultaneously. The loss of the Yanbu bypass as a functioning alternative to Hormuz would remove one of the key structural mitigants that contained the upside in crude during the June ceasefire period and materially changes the supply-risk framework for the second half of July.
The physical market is already pricing this tightening. The 3-2-1 crack spread breached $71 per barrel intraday last week, its first move above that threshold on record, before easing to around $62. The spread has risen more than 20 per cent in July and has now logged six consecutive weeks of gains, the longest such streak since 2017. Backwardation has deepened in tandem, with the prompt-to-second-month spread widening to the highest in June as near-term availability concerns outweigh longer-dated fundamentals. This combination of record crack spreads and deepening backwardation indicates that the tightness is showing up in refined products as much as in crude itself, and that physical buyers are paying up for near-term availability rather than waiting for resolution. With three simultaneous chokepoints under stress and the Yanbu bypass route now threatened, a Brent move above $100 looks increasingly plausible if the current disruption profile holds through the month.
The diplomatic backdrop has deteriorated rather than stabilised. Trump has explicitly played down the prospect of near-term talks, reiterating threats to strike Pickaxe Mountain, a suspected Iranian nuclear site, and vowing consequences for the deaths of American service members. Tehran has continued retaliatory action against US installations in Bahrain, Kuwait and Jordan, and Iranian strikes on Kuwait’s desalination infrastructure represent a significant escalation, moving beyond military assets to civilian critical infrastructure in a way that narrows the space for de-escalation and raises the cost of any negotiated settlement. Tehran confirmed receiving mediation proposals and reports of a possible short-term ceasefire circulated without confirmation but the widening of target categories makes any near-term binding framework harder to construct. The market’s experience of this pattern is now well established as ceasefire rumours produce brief pullbacks, while the absence of any binding framework means those pullbacks are repeatedly reversed by fresh escalation.
The structural bearish forces from June remain in place. The EIA’s demand destruction estimate of 1.1 million barrels per day for 2026 has not been revised, China’s import recovery from conflict-era lows has been gradual, and OPEC+’s sequential quota additions continue to add supply to the forward curve. Those forces are now competing directly with a physical disruption risk that has widened in scope, deepened in backwardation, and simultaneously threatened the two export route alternatives that had been absorbing Hormuz-related supply stress. Until the diplomatic process produces a binding outcome or collapses entirely, the balance of risks tilts toward range-bound to higher prices, with structurally elevated volatility and an asymmetric risk premium that reacts sharply to any escalation or headline from the Strait of Hormuz, the Red Sea, or Washington.
(Disclaimer: This article is by Kaynat Chainwala, AVP Commodity Research of Kotak Securities. Views expressed are his own.)
