Twin Chokepoints: Oil Whipsaws as Both Hormuz and Bab el-Mandeb Stay Shut

Both of the Persian Gulf’s critical oil corridors are effectively closed to normal commercial tanker traffic at the same time. The Strait of Hormuz is shuttered by IRGC enforcement; the Bab el-Mandeb strait is squeezing shut under a Houthi blockade and an insurance withdrawal. President Trump says a deal to reopen Hormuz is “imminent” and calls this Iran’s “last chance.” Iran says no talks with Washington are happening at all. Oil prices crashed 7% on the optimism, then rebounded as a cargo vessel was struck by an unidentified projectile off Oman and traders read the fine print.

The pattern is now familiar enough to recognize: threats of military escalation, a pause, a diplomatic claim, a market relief rally, and then the water tells a different story. What makes this moment different is that both Gulf corridors are closed simultaneously, Saudi Aramco is openly rerouting crude around Hormuz via its East-West pipeline, and the U.S. Senate has just passed a sanctions bill that extends the pressure to Russia’s oil buyers.

The Chokepoint Reality

Shipping through the Strait of Hormuz has been cut to a tenth of pre-conflict levels, according to Saudi Aramco CEO Amin Nasser, who described the disruption on August 4 as “the biggest supply shock in history.”^[1] The Iran conflict has removed an estimated 2.6 billion barrels of crude from global supplies, Nasser said, warning that depleted inventories would need 18 months at average replenishment rates to recover if the strait remained disrupted.^[2]

The operational picture is starker than the headlines. On July 27, Hormuz recorded zero tanker crossings. All six transits that day routed through the IRGC-controlled northern corridor, with no commercial tankers moving in either direction.^[3] IRGC high-speed craft were observed holding position in the southern strait, and satellite imagery confirmed dark (AIS-disabled) vessels anchored inside active transit corridors.^[3] In peacetime, more than 100 ships would typically transit the strait per day; on August 4, only six vessels moved through, none of them tankers.^[4]

The Bab el-Mandeb strait is closing in parallel. Since the Houthi blockade declaration against Saudi-linked shipping on July 20, overall crossings have fallen 22%, tanker transits are down 39%, and Saudi-linked crossings have dropped 46%.^[3] The decline sharpened after July 24, when Lloyd’s market insurers began excluding Saudi-linked vessels from war risk cover. That insurance withdrawal is assessed as the primary driver of the steepest tanker drop, from roughly 12 per day to approximately 7.5.^[3] Six Saudi-flagged supertankers altered course in the Gulf of Aden and are heading around southern Africa rather than risk the Red Sea.^[5]

Windward, the maritime intelligence firm, assesses the operational risk environment across Hormuz, the Gulf of Oman, the Red Sea, and Bab el-Mandeb as Critical: both major corridors effectively closed, active kinetic threats on both fronts, and evasion tradecraft spreading across the wider fleet.^[3]

The Diplomacy Disconnect

Trump’s narrative and Tehran’s are moving in opposite directions. On August 3, Trump told reporters that talks with Iran were “going on right now” and described the offer as a “last chance” to “sign a good document,” saying he expected Hormuz to reopen “literally by tomorrow.”^[4] He said he had paused “massive attacks” on Iran at the request of Gulf allies.^[6]

Iran’s Foreign Ministry spokesman Esmail Baghaei said there were no negotiations with Washington and no meetings had been scheduled.^[5] Tehran’s position is that its only ongoing discussions are with Oman about managing traffic through the strait.^[5] Iran has publicly rejected negotiations with Washington since the collapse in early July of a memorandum of understanding the two sides had signed in June.^[4]

The gap matters because markets are pricing Trump’s rhetoric while the physical indicators are pricing Iran’s actions. ING analysts said the Monday oil selloff “seems fairly overdone, given that there’s still considerable uncertainty. We’ve been in this situation multiple times before, only to see things unravel.”^[4] Tim Waterer of KCM Trade noted that “oil could just as easily rebound higher if missiles start flying again or if tankers around the Strait of Hormuz come under fire once more.”^[5]

That is precisely what happened. On August 4, the UK Maritime Trade Operations agency received a report that a cargo vessel had been struck by an unknown projectile about 20 nautical miles northeast of Oman’s Al Khasab, near the Strait of Hormuz.^[5] The crew abandoned the vessel; one seafarer was missing.^[4] Oil prices rose nearly 3% on the news, erasing roughly half of the prior session’s crash.^[4]

Oil’s Whipsaw

The price action tells the story of a market caught between two competing narratives. Brent crude fell about 7% on August 3 to a three-week low after Trump’s upbeat diplomatic spin, then rebounded 1.3% to $84.89 a barrel by early August 4 trading.^[2] WTI followed the same pattern, dropping over 5% on Monday before recovering 0.7% to near $81.^[5] Part of Monday’s plunge was amplified by futures contract rollover, with the cheaper October contract becoming the front month. But the underlying trigger was the diplomatic headline.^[5]

Energy equities reflected the same divergence. The United States Oil Fund (USO) dropped 5.46% on August 3 to $122.12.^[7] Chevron (CVX) fell 1.85% to $193.19, and ConocoPhillips (COP) closed at $119.16 before slipping further in pre-market to $117.49, down 1.4% as of 08:26 ET.^[7] ExxonMobil (XOM) was relatively steady at $155.05, down just 0.25%.^[7]

Defense names held their ground. Lockheed Martin (LMT) rose 0.61% to $586.28,^[8] and RTX was roughly flat in pre-market at $216.67.^[7] The pattern is consistent with a market that is trimming energy exposure on de-escalation headlines but maintaining defense exposure as a hedge against the talks collapsing.

Aramco’s Reroute: The Resilience Tell

Saudi Aramco reported a 42% jump in second-quarter adjusted net income to $33.4 billion, driven by higher oil prices tied to the Iran conflict.^[1] But the more strategically significant disclosure was operational: Aramco is routing crude around Hormuz via its East-West pipeline to Red Sea terminals, keeping exports flowing despite the strait’s closure.^[1] Nasser said Houthi attacks on Saudi Arabia had no material impact on production.^[1]

This is the quiet resilience story that tempers the worst-case Hormuz scenario. Saudi Arabia has spent years building the 1,200-kilometer East-West pipeline capacity precisely for moments like this, allowing crude loaded at eastern Gulf fields to reach Red Sea ports like Yanbu without transiting Hormuz. Yanbu is now operating “entirely dark” with continuous loading throughput, with vessels disabling AIS to avoid Houthi targeting.^[3] Twelve vessels were assessed as actively loading across berths in late-July satellite imagery, with continuous departures confirmed.^[3]

But the reroute has limits. The pipeline can only carry a fraction of Saudi Arabia’s full export capacity. And the Red Sea exit is itself under pressure: Bab el-Mandeb tanker transits have collapsed since the Houthi blockade and the Lloyd’s insurance withdrawal.^[3] Three China-linked VLCCs have transited Bab el-Mandeb without incident, suggesting Beijing has secured a carve-out from the Houthi blockade. Chinese and Russian-linked vessels are being treated under different rules than Saudi-linked tonnage.^[3] The implication is that the chokepoint crisis is fragmenting global shipping into a two-tier system: vessels with Chinese or Russian links pass; others divert.

The Graham Act: A Second Sanctions Front

While the Iran crisis dominates the oil market, the U.S. Senate has added a second pressure vector. On July 28, the Senate voted 86-12 to advance the Lindsey O. Graham Sanctioning Russia and Iran Act of 2026, imposing up to 100% secondary tariffs on the world’s five largest purchasers of Russian crude oil and natural gas.^[9] The bill is designed to be IEEPA-proof, structured to withstand potential presidential emergency-power challenges, meaning it would survive even if Trump attempted to waive or suspend it.^[9]

The vote came just hours after the funeral of Senator Lindsey Graham, the bill’s chief architect, who had pushed for months to move the sweeping sanctions package forward.^[9] Ukrainian President Zelensky observed the Senate floor during the procedural vote.^[9]

The Graham Act is being read as a Ukraine story, but the sanctions architecture is a trade instrument aimed at Asia.^[10] The five largest buyers of Russian crude include India and China, countries already absorbing the Hormuz disruption’s impact on energy imports.^[5] If the bill passes the House and becomes law, it would layer a sanctions-driven supply shock on top of the physical chokepoint crisis, potentially tightening global crude availability even if Hormuz reopens.

The Two-Tier Shipping Pattern

The most telling indicator in this crisis is not oil prices or political rhetoric. It is the emerging two-tier pattern in maritime traffic. Chinese-linked VLCCs transited Bab el-Mandeb loaded with Saudi crude from Yanbu, heading eastbound to Ningbo, without incident.^[3] On the Iranian side, blockade-breaker candidates are moving Iranian crude toward Chinese ports, with at least two vessels assessed as having already crossed the U.S. blockade line undetected.^[3] An Iran-flagged VLCC carrying approximately 2.01 million barrels of Iranian heavy crude for Dongjiakou, China, is the largest single cargo on the watch list.^[3]

Meanwhile, Saudi-linked vessels are being forced to go dark, reroute around Africa, or face the Houthi hit list. Lloyd’s market insurers have pulled war risk cover.^[3] The message from the water is clear: the chokepoint crisis is not closing all traffic equally. It is creating a system where Chinese and Russian-linked tonnage operates under differential rules, passing through corridors that are effectively closed to everyone else.

For markets, this means the supply shock is not uniform. Asian buyers with access to Chinese-routed crude may face less disruption than European or American refiners. The fragmentation of maritime trade, not just the headline closure of a strait, is the structural shift that will outlast any individual ceasefire or deal.

What to Watch Next

• Hormuz tanker traffic data. Kpler and Windward track daily transit counts. A sustained return above 50 transits per day would be the first credible signal of reopening; current levels are at 6.^[4]
• The U.S.-Iran “last chance” deadline. Trump has framed this as a final diplomatic window.^[4] If no deal materializes by mid-week, the pause on strikes expires and the escalation cycle resumes. Iran’s denial that talks are happening makes this the base case.
• Graham Act House timeline. The Senate passed it 86-12; the House has not yet voted.^[9] A House vote before the August recess would layer sanctions pressure onto an already-tight crude market.
• Lloyd’s insurance posture. The July 24 withdrawal of war risk cover for Saudi-linked vessels was the primary driver of the Bab el-Mandeb tanker collapse.^[3] Any widening of exclusions or any reversal would move shipping costs and crude differentials.
• OPEC+ September quota increase. The group agreed to raise output by approximately 188,000 barrels per day from September,^[5] but additional supply has not translated into greater availability because of Gulf disruptions. Watch whether the increase gets repriced as meaningful or symbolic.
• Brent’s $85 line. FXEmpire notes Brent may retain its positive outlook while above $85, with WTI needing to break above $90 to support further gains.^[2] A break below $85 would signal the market is pricing de-escalation; a hold above it signals the chokepoint premium remains intact.

FN2 Research provides financial research and education, not personalized investment advice. This article synthesizes publicly reported information and does not constitute a recommendation to buy or sell any security.