Oil rose again after Iran’s Hormuz offer was turned down

Brent futures rose more than 3% on 28 September, and the November contract traded at $107.35 a barrel shortly before 10:00 Tirane time. Over the weekend, President Trump said that Iran’s latest proposal to end the war was not acceptable.

Under the proposal, as reported by Al Jazeera, the US would release frozen Iranian funds, lift sanctions and end its naval blockade of Iranian ports. In return, Iran would reopen the Strait of Hormuz and return to talks on its nuclear programme within a week. Tehran announced the plan at the United Nations General Assembly on Friday 25 September. The rejection came the next day.

Why the strait sets the price

No other waterway matters as much to the oil market. In 2024, according to the US Energy Information Administration, oil flows through Hormuz averaged 20 million barrels a day, about a fifth of the world’s consumption of oil and oil products.

There is little room to go around it. Saudi Arabia and the United Arab Emirates have pipelines that reach ports outside the Gulf, but the EIA estimated that only about 2.6 million barrels a day of their capacity could be spared to bypass the strait. That is roughly an eighth of the normal flow.

Since the US and Israel began strikes on Iran in late February, commercial shipping through the strait has fallen sharply, after attacks on vessels in the Gulf. Al Jazeera, citing the maritime data platform MarineTraffic, reported 132 transits in the week to 27 September, up from 116 the week before. Before the war there were about 130 crossings a day. Even after the recent rise, traffic is running at about a seventh of its old level.

A price with a war premium

The price has followed the news from the Gulf. Spot Brent, the price of physical North Sea cargoes, was $71.32 a barrel on 27 February. It reached $138.21 on 7 April, its highest since July 2008. It fell back to $88.24 by 25 August, jumped to $130.80 on 15 September and was $114.89 on 22 September, the latest daily price from the EIA.

The EIA’s September outlook explains why prices stay high even when the headlines calm down. It estimates that global oil stocks have fallen by 400 million barrels so far this year, and it expects them to keep falling to the end of 2026. It assumes that some limits on exports from the Middle East will last to the end of the year, and that output in the region will stay below its pre-conflict average until the second quarter of 2027.

The same outlook put Brent at an average of about $90 a barrel in the second half of 2026 and $74 in 2027. Those forecasts were finished on 3 September, before the jump in the middle of the month, so they do not include it.

What a deal would do

Any sign that talks will resume would pull the nearest oil contracts down first, because they carry most of the risk premium. Until then, each rejected offer puts some of that premium back into the price.

A deal would not end the shortage at once. Tankers would need time to return, insurers would need to cover them again, and stocks that took months to fall would take months to rebuild. That is why the EIA sees prices falling only gradually, as production rises and inventories recover.

For central banks, the oil price is now the main input. Energy drove most of the rise in inflation this year in both the US and the euro area, and both the Fed and the ECB raised rates in September. A lasting fall in oil would ease the pressure on them. A new jump would add to it.

What to watch

The weekly count of ships through the strait is the most direct sign of whether supply is coming back. The EIA publishes its next outlook on 6 October, and it will be the first to include the September jump.