MUFG’s Senior Currency Analyst Michael Wan highlights ongoing supply risks in the oil market due to the Iran and Middle East conflict, with the Strait of Hormuz remaining constrained for tanker traffic [1]. Tankers are reportedly testing alternative southern routes near Oman, rather than the northern route near Iran, where tolls are paid through Qeshm Island [1]. Evidence indicates a higher number of tankers have passed through the Strait in recent days, but overall traffic remains well below pre-conflict levels and is primarily moving from West to East, rather than in both directions [1].
Over the weekend, Iran announced that Iraq is now permitted to ship oil out via the Strait of Hormuz, which could theoretically add up to 3 million barrels per day to the market [1]. However, MUFG notes that there are significant uncertainties regarding how Iran defines "Iraq oil," and immediate market impact is limited by factors such as insurance, tanker availability, and timing [1].
Despite these developments, MUFG maintains a cautious outlook for Asian currencies and risk assets, citing continued uncertainty around the Iran/Middle East conflict and the ongoing constraints at the Strait of Hormuz [1]. The marginal relief from alternative routes and potential Iraqi oil shipments is seen as positive, but not sufficient to offset elevated risks in the oil market [1].
CONCLUSION
Oil supply risks remain elevated due to ongoing constraints at the Strait of Hormuz and uncertainty surrounding the Iran/Middle East conflict. While alternative routes and potential Iraqi oil shipments offer some relief, immediate market impact is limited. MUFG advises caution for risk assets and Asian currencies given the persistent uncertainty.