If Hormuz is open; why is oil & gas so expensive

Picture Credit: by Reuters

Despite the reopening of the Strait of Hormuz and the recovery of oil shipments, global fuel prices remain at historically high levels as ongoing conflicts, soaring transportation costs and shrinking reserves continue to strain energy markets.

According to AAA, US gasoline prices are averaging $4.36 per gallon, their highest level for this time of year. Diesel prices also remain close to record highs, reflecting a broader energy crisis extending beyond the initial supply disruptions caused by the Iran war.

One major factor is the extraordinary cost of transporting oil through the Middle East. According to shipping research firm Clarksons, hiring a supertanker to transport crude from the Persian Gulf to China now costs approximately $1.6 million per day, compared with just $65,000 last year.

Security threats have also driven up insurance premiums and crew compensation, increasing the cost of delivering oil to international markets.

These expenses have created a significant gap between financial oil prices and physical market prices. While Brent crude futures trade near $100 per barrel, the immediate physical price of Brent has reached approximately $135.74.

Meanwhile, geopolitical conflicts continue to disrupt global energy infrastructure. Ukrainian drone strikes have damaged Russian refineries, while Houthi attacks in the Red Sea have threatened another critical shipping route.

Russia and China have also restricted fuel exports to protect domestic supplies, placing additional pressure on international markets.

Picture Credit: by AP News

Compounding these challenges, commercial fuel inventories and emergency oil reserves have been substantially depleted, leaving limited protection against further disruptions.

US refineries are operating near maximum capacity, while seasonal maintenance and potential hurricane damage threaten additional supply constraints.

Although oil shipments through the Strait of Hormuz have recovered, analysts warn that sustained relief in fuel prices will depend on improved security, restored refining capacity and the rebuilding of global energy reserves.

The crisis demonstrates that restoring oil flows alone may not be enough to stabilise global energy markets.