Oil tanker traffic through the Strait of Hormuz has slowed to a near standstill this week after Iranian forces attacked three commercial vessels, prompting retaliatory U.S. airstrikes. The escalation has effectively voided a June 17 memorandum of understanding, leaving global energy markets bracing for renewed volatility as both nations trade military fire.

Strait Traffic Collapses as Shipping Risks Mount

Data from the trade intelligence firm Kpler shows a dramatic reduction in maritime activity. On Wednesday, only 13 tankers crossed the strait, a sharp decline from the previous week’s daily average of 33, according to Matt Smith, director of commodity research at Kpler. By Thursday, shipping had slowed further, with only two vessels recorded transiting the passage. Industry observers note that many vessels are now turning off their AIS tracking transponders to avoid detection, making the true volume of traffic difficult to monitor. According to Smith, ships have either followed the route controlled by Iran or switched their transponders off to avoid tracking.

The maritime intelligence firm Windward told clients in a Wednesday note: “The collapse of the ceasefire framework, the reimposition of Iranian oil sanctions, and the scale of U.S. kinetic action inside Iran represent the most significant escalation of the conflict since its opening phase.”

The Breakdown of the U.S.-Iran Memorandum of Understanding

The recent violence marks the collapse of a delicate truce established in mid-June. President Donald Trump confirmed on Wednesday that he considers the memorandum of understanding (MoU) void following the attacks on three tankers. Tehran had promised safe passage to ships and agreed not to charge a toll for 60 days under the interim deal with the U.S. However, Tehran demanded that ships use a northern route under its control to enjoy safe passage, while attacking vessels using a southern route along Oman’s coast protected by the U.S. Navy. Michelle Wiese Bockmann, a senior maritime intelligence analyst at Windward, stated: “This is part of this sporadic targeted campaign by Iran to destabilize that southern corridor and send a message to Gulf State producers that are not sending their oil via that northern corridor.”

For more on this story, see Hormuz Strait Attacks: How Escalation Could Derail US-Iran Peace Talks.

The conflict traces back to February 28, when the U.S. and Israel launched a massive wave of airstrikes that killed Iranian head of state, Ayatollah Ali Khamenei. Iran subsequently shut down the strait by threatening commercial ships, triggering what the International Energy Agency’s Fatih Birol called the largest supply disruption in the history of the global oil market.

Economic Stakes and the Impact on Global Supply

The Strait of Hormuz remains a critical global chokepoint, historically handling roughly one-fifth of the world’s oil and liquefied natural gas (LNG) supplies. No amount of Gulf pipeline capacity can fully replace it. Saudi Arabia has redirected crude through its roughly 1,200km (746-mile) East-West pipeline to the Red Sea port of Yanbu, and the UAE has leaned on the Habshan-to-Fujairah line to the Gulf of Oman. However, these pipelines carry only a fraction of former capacity: 7 million barrels a day for the Saudi line and under 1.8 million for the Emirati one, compared to the roughly 20 million barrels a day that transited the strait before the war. Furthermore, Iranian strikes cut the East-West pipeline’s throughput by an estimated 700,000 barrels a day in April, and drone attacks disrupted loading at Fujairah.

This follows our earlier report, U.S. Launches New Strikes on Iran Following Trump’s Warning.

For Iran, the strait serves as its primary leverage, though the economic cost has been severe. Iranian oil exports collapsed by more than 90 percent in May as U.S. naval enforcement squeezed its shadow fleet. Its crude, once sold for $3 a barrel less than international benchmarks, is now selling at a 20 percent discount. Tehran has sought the release of half of an estimated $25bn in frozen assets, while the U.S. has resisted, and a separate $300bn reconstruction fund floated in the MoU has become a political flashpoint in Washington.

Read also: US Strikes Iran & Reimposes Oil Sanctions-Yet Tehran Already Profited Billions.

Escalation Risks and Insurance Market Uncertainty

The U.S. has launched two rounds of airstrikes against Iran and reimposed oil sanctions in retaliation for the tanker attacks. In response to the U.S. strikes on Iranian territory, Tehran struck Bahrain and Kuwait. The crisis has forced regional neighbors into difficult positions; Oman, a signatory to the United Nations Convention on the Law of the Sea (UNCLOS), publicly rejects Iranian tolls, while Iraq has explored an export route north through Turkiye.

Andy Lipow, president of Lipow Oil Associates, noted in a Thursday note to clients: “It appears to be pricing in a new normal where periods of conflict (perhaps we might call them missile skirmishes) occur between periods of relative calm (or unease) that permit the transit of tankers.” Oil prices have rallied more than 6% this week as investors worry that crude exports through Hormuz could plunge again.

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