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Oil prices surged nearly 10 per cent, marking their biggest single-day gain since 2020, after renewed military tensions in West Asia and US President Donald Trump’s decision to reimpose a blockade on Iranian shipping through the Strait of Hormuz reignited fears of prolonged disruptions to global energy supplies.
Brent crude futures for September delivery climbed 9.62 per cent, or $7.31, to settle at $83.32 a barrel, recording their largest daily percentage gain since May 2020. US West Texas Intermediate (WTI) crude rose 9.4 per cent to close at $78.14 a barrel, its fourth-biggest one-day advance of 2026.
The rally erased nearly a month’s worth of losses as traders abandoned hopes that the strategic shipping lane would quickly return to normal operations.
The latest escalation has also strengthened expectations that Gulf producers will permanently diversify oil export routes away from the Strait of Hormuz, one of the world’s most important energy chokepoints through which about one-fifth of global oil supplies typically pass.
Market revives ‘NACHO’ trade
The renewed conflict has revived what Wall Street calls the “NACHO trade” — short for “Not a Chance Hormuz Opens” — a strategy built on the assumption that the strait will remain heavily restricted, keeping oil prices elevated until the economic costs become unsustainable.
Analysts warned that tighter global inventories could amplify future price spikes. The US Strategic Petroleum Reserve has fallen to its lowest level since 1983 after repeated releases aimed at containing fuel prices.
At the same time, hedge funds and other speculative investors have cut positions in oil futures after months of volatile trading, reducing market liquidity.
Analysts at Dutch bank ING said uncertainty over whether the latest flare-up would prove temporary or prolonged has left many investors reluctant to take large positions.
Gulf producers seek alternatives
Even before the latest escalation, Gulf producers had begun accelerating investments to reduce reliance on the Strait of Hormuz.
Saudi Arabia has been increasing crude shipments to Red Sea ports through its east-west pipeline, while the United Arab Emirates is expanding pipeline and export terminal capacity outside the strait. Iraq is pursuing plans to revive overland export routes through Turkey, Syria and Jordan.
According to Goldman Sachs, planned pipeline expansions could enable more than 45 per cent of prewar Gulf oil exports to bypass Hormuz by the end of 2027. If projects are accelerated, that share could increase to 75 per cent by the end of 2028.
However, analysts cautioned that while alternative pipelines can reduce dependence on the strait, they would also require billions of dollars in investment and remain vulnerable to attacks.
Global supply chains adjust
Persistent uncertainty over Middle Eastern exports has encouraged oil producers outside the Gulf to increase output.
US shale producers, along with companies in Brazil, Kazakhstan and Venezuela, have ramped up production, while many Asian refiners have diversified imports by purchasing more crude from Latin America, West Africa and the United States. US crude and petroleum product exports reached record highs this spring.
China, however, has taken a different approach. The world’s largest oil importer has significantly reduced purchases and has shown little urgency to rebuild inventories at current price levels, analysts said.
Meanwhile, a large volume of Iranian crude remains outside the immediate blockade zone. Shipping data from Kpler showed that more than 34 million barrels of Iranian crude had already passed through the Strait of Hormuz since Washington temporarily lifted its previous blockade in June, potentially softening the economic impact of renewed restrictions.
Conflict experts believe the latest escalation is unlikely to produce a lasting settlement.
With inputs from agencies.
