Oil prices fall after highs! "Khark Island bombing" and "Hormuz navigation signal" disrupt the market

# Long Yue

Source: Wall Street Insights

News of the U.S. military launching "intense airstrikes" on Kharg Island, Iran’s largest crude oil export hub, roiled markets, briefly pushing Brent crude to $106 per barrel before it erased gains and turned lower. Meanwhile, two Indian vessels successfully transited the Strait of Hormuz, signaling a partial easing of tensions, though overall shipping remains severely restricted. Morgan Stanley estimates daily traffic through the strait has plummeted to 0–2 vessels, an 85%–95% drop from normal levels.

A confluence of factors—Middle East tensions, shipping disruptions in the Strait of Hormuz, and military developments—continues to roil the crude oil market.

Early Monday, both crude oil markets and U.S. stock futures rose, with Brent crude briefly topping $106 and WTI crude climbing above $101. As trading progressed, however, oil prices retreated into negative territory, while U.S. stock futures extended their gains.

This price action temporarily broke the near-perfect negative correlation between crude oil and equities seen in recent sessions. U.S. Treasury futures remained steady, and the U.S. dollar edged lower.

Current price action reflects traders weighing two competing narratives: fears of supply shocks from U.S. strikes on Iran’s Kharg Island oil export hub, and signs of partial relief in the Strait of Hormuz congestion.

## Kharg Island Attack: A Critical Inflection Point for Global Oil Markets

Market focus remains firmly fixed on supply shocks emanating from the Middle East.

According to CCTV News, on the evening of Friday, March 13 (ET), U.S. President Donald Trump posted on social media that U.S. forces had launched "intense airstrikes" on military targets at Kharg Island, Iran’s oil export hub.

Kharg Island handles 90% of Iran’s oil exports—nine out of every 10 barrels of Iranian crude are loaded there. The island features deep-water ports and large storage facilities capable of accommodating ultra-large crude carriers (ULCCs), with a maximum loading capacity of approximately 7 million barrels per day.

The direct U.S. military strike on the island has amplified risks to the global oil supply chain. Market analysts note the incident has heightened supply chain vulnerabilities, and the de facto blockade of the Strait of Hormuz remains largely in place.

## Signs of Partial Shipping Recovery in the Strait of Hormuz

In contrast to the Kharg Island developments, shipping has shown tentative signs of easing.

CCTV News reporters learned on March 14 that two LPG carriers flying the Indian flag and operated by an Indian shipping company recently successfully crossed the Strait of Hormuz and are now en route to India, expected to arrive at Indian ports within days.

Additionally, Bloomberg ship-tracking data shows that over the past 24 hours, several Iran-linked vessels—including one VLCC, one LPG carrier, and several bulk carriers—have departed the Gulf, while one container ship has entered the Persian Gulf.

Indian External Affairs Minister S. Jaishankar commented: "I am currently in dialogue with them [Iran], and my talks have yielded some results. If this works for me, I will naturally continue with this approach."

Jaishankar emphasized that dialogue and coordination yield better outcomes than inaction. He clarified, however, that this is not a quid pro quo, nor has a comprehensive transit agreement been reached. "Each vessel passage is handled on a case-by-case basis," he stated explicitly. More than 20 merchant ships flying the Indian flag remain anchored in the strait awaiting transit.

Perhaps the most encouraging development: the Gulf region has gone three consecutive days without a major vessel incident. The last attack notice from the UK Maritime Trade Operations (UKMTO) dates back to March 12.

CNBC reporter Brian Sullivan offered a direct assessment: "The strait remains very calm… Will that change in the next 24 hours?"

## U.S. Prepares Escort Missions; Morgan Stanley Confirms Shipping Collapse

In response to supply chain disruptions and surging energy prices caused by the strait blockage, the Pentagon is taking action. U.S. media reports indicate Defense Secretary Hegseth has approved the deployment of an amphibious ready group consisting of several warships and 5,000 Marines. The USS Tripoli, an amphibious assault ship based in Japan, is en route to the Middle East.

U.S. officials revealed the Pentagon is considering deploying additional destroyers to escort tankers attempting to transit the strait. This is not an immediate fix, however. Officials stressed that even with reinforcements, the U.S. military will not launch escort operations immediately; they will wait until the Iranian threat diminishes, a process that could take a month or longer.

Shipping conditions in the Strait of Hormuz remain dire nonetheless. Morgan Stanley estimates based on vessel data:

- Pre-conflict: Approximately 25 oil tankers and LNG carriers transited the strait daily

- Past 11 days: Actual traffic has averaged just 0–2 vessels per day

In its latest daily tracking report, Morgan Stanley sharply revised down its transit estimates. The firm noted increased data noise due to disruptions and spoofing of Automatic Identification System (AIS) signals. After re-verification, the average daily traffic through the Strait of Hormuz over the past 11 days stands at just 0–2 vessels, far below the previous estimate of 2–6.

"Whether traffic has fallen by roughly 85% or 95%, the conclusion is the same: passage through the Strait of Hormuz remains severely restricted, meaning the global oil market faces a very significant supply shock," Morgan Stanley emphasized in the report.

## Goldman Sachs: U.S. Stocks Face Risks Beyond Middle East Tensions

Against the backdrop of high oil prices coexisting with a U.S. stock rebound, Goldman Sachs analyst Brian Garrett noted the S&P 500 is now roughly 5% away from its all-time high.

Garrett highlighted two key facts for investors: "First, the conflict de-escalation mechanism is not unilaterally determined; second, the risk matrix includes macro factors such as credit and employment, in addition to Middle East tensions."

Against this backdrop, Garrett argued that shorting delta positions is currently the optimal strategy for managing long exposure. He explicitly stated that upside for the market is effectively capped near all-time highs (around 7,000 points), while downside risk is unlimited.

## Risk Warning and Disclaimer

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