• 3 July 2025
  • Market: Crude, Oil Products

This episode examines how the Israel-Iran conflict and concerns over the Strait of Hormuz sent shockwaves through oil markets, driving up prices and altering trade flows. We also explore the ceasefire’s impact, the potential return of Iranian crude, and its implications ahead of the July 6 OPEC+ meeting.

Topics Covered:

  • Israel-Iran Conflict Escalation: How missile strikes and retaliations rattled oil markets and spiked prices.
  • Strait of Hormuz Fears: The chokepoint’s strategic importance and its impact on Mideast Gulf crude premiums.
  • Winners and Losers: How Murban and Oman crude gained a temporary edge due to bypass routes.
  • Atlantic Basin Crude Surge: Why Brent-linked grades and regional sweet crudes saw a demand boost.
  • Ceasefire Impact: Market cooldown, but lingering caution and elevated premiums.
  • Iranian Oil Speculation: Confusion over potential sanction relief and what it could mean for Asian refiners.
  • Iranian Oil Speculation: Confusion over potential sanction relief and what it could mean for Asian refiners.

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Transcript

Adam: Hello, and welcome to another edition of "The Crude Report: the APAC series." As always, I'm joined by Fabian Ng, the crude editor here at Argus Media.

This June, a sharp escalation in the long-simmering shadow war between Israel and Iran broke into the open. After an Israeli strike on Iran's nuclear and energy facilities, the U.S. joined in, with targeted strikes, again targeting Iranian nuclear facilities. Iran responded with missile fire on a U.S. base in Qatar, a carefully-limited retaliation, aimed at avoiding full-scale war.

Oil markets didn't wait to react. Global benchmarks spiked on fears of regional supply disruption, especially around the critical Strait of Hormuz. But prices quickly retreated, as the U.S. stepped in to broker a ceasefire, and it became clear that major infrastructure and shipping lanes had been spared.

In this episode, we're breaking down what this means for the oil market, from the immediate price swings and shipping risks to the broader questions about energy security, and the world's exposure to Middle East volatility. So, Fabian, let's start with the basics. Just how did the Israel-Iran conflict affect Middle East crude oil prices?

Fabian: Hi, Adam. That's a good question. So, the conflict triggered serious concerns about potential supply disruptions, especially through the Strait of Hormuz that you mentioned, through which most Middle East crude exports must pass.

Even though there were no actual physical interruptions, the perceived risk alone was enough to send crude prices soaring. For example, Qatar's Al-Shaheen crude saw premiums jump to their highest since February, and Iraq's Basrah heavy's premium, to its formula price, soared to its highest since January.

Adam: I see. So, was it more about fear than actual disruption?

Fabian: Exactly. The market reacted to the possibility of disruption. So, a collision between two tankers in the Gulf of Oman on the 17 of June added to those anxieties, and Asian buyers had to pay up to secure the Middle East cargoes, which are more exposed to regional tensions.

Adam: And what about Murban crude from Abu Dhabi? I heard it behaved a bit differently.

Fabian: Good point. While most Middle East producers have limited options to bypass the Hormuz choke point, the UAE has a pipeline that allows them to export the bulk of their flagship light sour Murban crude from Fujairah, which lies outside the Strait, in the Gulf of Oman.

So, that actually gave it a temporary edge. So, Murban prices rose faster than Abu Dhabi's other light sour grades, like Das and Umm Lulu initially. And Oman crude, which also bypasses Hormuz, saw similar benefits. But even these grades weren't immune to the broader market dynamics.

Adam: But it wasn't just Middle East crude prices that jumped. Why is that?

Fabian: Now, the physical threat to Middle East crude supply actually boosted demand for safer alternatives, such as Atlantic Basin crude, priced against sweet crude benchmarks. And this pushed the premium between ICE Brent sweet crude futures and medium sour Dubai swaps to a 21-month high of $3.70 per barrel on the 20th of June. This is double from $1.83 per barrel premium on 12th of June, before Israel's initial strikes. And that wider Brent-Dubai spread makes Atlantic Basin crude more expensive for Asian refiners.

We also saw some Asian crude grades hit multi-month highs. For example, Malaysian light sweet Labuan crude was sold at its highest premium to Dated Brent since the start of this year. This likely reflects Asian buyers turning to regional short-haul supplies with lower geopolitical risk.

Adam: And now we have a ceasefire, which seems to have calmed these supply worries and brought prices back down. Is it all back to normal on the market front then?

Fabian: Yes and no. Middle East sour crude prices have indeed cooled off from their peaks. Dubai benchmark backwardation dropped by over $1 per barrel after the ceasefire, while spot premiums for Upper Zakum and Oman crude also fell by similar levels. But here's the catch. These prices are still slightly elevated compared to pre-conflict levels. So, while the overall panic has subsided, the market remains cautious.

Adam: Yes. And there is still a potential for other actors in the region to be pulled in, say, with Hezbollah or the Houthi, perhaps even without U.S. involvement?

Fabian: Precisely. As some market participants say, supply risks haven't disappeared. Regional tensions continue to cast a shadow over the market.

Adam: Interesting. And there's also talk about Iranian oil possibly returning to the market?

Fabian: Yes. That's another twist. After the ceasefire, U.S. President Donald Trump posted that China can resume buying Iranian oil. So, that actually caused some confusion, especially since sanctions are still technically in place. If those sanctions are lifted or relaxed, it could bring more Iranian crude back into the market. But, I think Asian refiners are still waiting for more clarity before making any big moves.

Adam: I see. So, who stands to benefit if sanctions are eased?

Fabian: In the short term, China's independent refiners in Shandong would benefit most. Chinese state-owned firms stopped buying Iranian crude back in 2019. But if sanctions are officially lifted, these firms could reenter the market, potentially squeezing Shandong refiners out of their main source of discounted feedstock.

Adam: I see. So, what's the broader takeaway for our listeners?

Fabian: I think geopolitical risk remains a powerful force in oil markets. Even without physical disruptions, just the perception of it can drive prices.

The ceasefire has brought relief, but the region is still tense. And with potential shifts in U.S. sanctions policy, the outlook remains fluid. But if the situation in the Middle East stabilizes, the market will likely return its attention to supply-demand fundamentals.

The next OPEC+ meeting, scheduled for the 6th of July, will be key, especially if the group decides to continue unwinding voluntary output cuts at an accelerated pace, just as they have done for May through July.

Adam: Thanks, Fabian. A fluid outlook indeed. With the geopolitical tension still simmering, and OPEC+ decisions on the horizon, the market's next moves will be anything but dull.

And that's all for this episode of "The Crude Report." So, remember to look out for the next one, where we'll continue to track the forces shaping global oil markets. Until then, it's just left for me to once again thank our crude editor, Fabian. Thank you, sir.

Fabian: Thanks, Adam.

Adam: And we'll catch you next time on "The Crude Report: the APAC series."

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