US-Iran Conflict Escalates as Oil Shipping Costs Surge to Record Highs

Daily News

Summary:

The US-Iran war is set to enter a distinctly different phase, while the cost of shipping US crude oil to Asia has surged to a record $44.8 million...

【Highlights】

1. US-Iran war set to enter a distinctly different phase

2. Senior US, Israeli and Arab military officials hold secret meeting on Iran

3. Saudi Arabia’s East-West oil pipeline could restart within days

4. US Treasury’s buyback operation proves successful as 20-year Treasury yield hits highest level since 2020

5. Cost of shipping US crude to Asia surges to a record $44.8 million

【Details】

US-Iran War Set to Enter a Distinctly Different Phase

US Vice President JD Vance said on Monday that the US-Iran war will enter a distinctly different phase in the coming months, agreeing with President Donald Trump that the course of the conflict could change after the November midterm elections. Speaking aboard Air Force Two, Vance said, “We can’t predict the future, but I think the president is right that this war will enter a distinctly different phase in a few months.”

Vance said the United States is no longer conducting what he described as offensive operations, while Iran continues to fire on merchant vessels from time to time. He said shipping traffic through the Strait of Hormuz has recovered to more than 50% of normal levels.

Vance said the conflict effectively consists of two phases, with the first phase now over. He said the initial US objectives were to destroy Iran’s nuclear program, conventional military capabilities and long-range strike capabilities. The focus of the next phase, he said, will be to prevent Iran from rebuilding those capabilities while maintaining global stability.

Senior US, Israeli and Arab Military Officials Hold Secret Meeting on Iran

Two Israeli officials said senior military commanders from the United States, Israel and several Arab countries met in Germany last week to discuss the war with Iran and broader regional tensions.

The closed-door meeting was organized by Gen. Brad Cooper, commander of US Central Command (CENTCOM). In addition to Cooper, the meeting was attended by the chiefs of staff of the armed forces of Israel, Saudi Arabia, the United Arab Emirates, Bahrain, Kuwait, Qatar, Jordan and Egypt.

Cooper assured the participants that even if Iran continues to attack US military bases, American forces would not withdraw from the region. He also briefed his counterparts on US operational plans related to the Strait of Hormuz.

An Israeli official said the Israel Defense Forces (IDF) chief of staff briefed the other participants on Israel’s military operations across multiple fronts.

US Central Command confirmed the meeting, saying in a statement that it had hosted a previously scheduled meeting in Germany with senior military leaders from eight countries. The participants discussed ways to strengthen security cooperation in the Middle East.

People familiar with the matter said Israel and Saudi Arabia are also discussing, under CENTCOM mediation, how Israel could support Saudi military operations against the Houthi movement. The discussions include providing intelligence, surveillance and reconnaissance support modeled on assistance provided to the UAE.

Saudi Arabia’s East-West Oil Pipeline Could Restart Within Days

US Energy Secretary Chris Wright said Saudi Arabia’s East-West oil pipeline could reopen within days.

Asked whether the pipeline would take days or longer to resume operations, Wright replied that he expected it to be a matter of days. He reiterated that the pipeline could restart soon.

Wright also said Saudi Arabia is moving quickly to reroute oil shipments through the Strait of Hormuz with assistance from the US military.

US Treasury Buyback Operation Proves Successful as 20-Year Treasury Yield Hits Highest Level Since 2020

US Treasury Secretary Scott Bessent said on Tuesday that the Treasury Department’s recent buyback of long-term US Treasuries had been successful, pointing to strong demand at two Treasury auctions following the intervention.

Although Bessent has described the buybacks as a way to inject liquidity into the market and curb rising Treasury yields—which have increased the government’s debt-servicing costs—Treasury yields continued to rise even after the department conducted its largest buyback last week.

“We can imagine what it would have looked like if we had not taken these measures, and then we had the two most successful Treasury auctions in 20 years,” Bessent said at a congressional hearing. He added that since President Trump took office, the US bond market has been the best-performing government bond market among developed economies.

The US Treasury on Tuesday sold $13 billion of 20-year Treasury bonds at a yield of 5.42%, the highest rate since the Treasury resumed issuing the securities in 2020. The yield was 21.6 basis points above the 5.204% rate at the previous auction. The bid-to-cover ratio was 2.57, up from 2.53 at the previous auction.

The 10-year Treasury yield also climbed on Tuesday, briefly touching its highest level since 2007.

Cost of Shipping US Crude to Asia Surges to Record $44.8 Million

Concerns over disruptions to Middle Eastern oil supplies have pushed the cost of shipping US crude to Asia to a record high.

According to data from the Baltic Exchange, the cost of chartering a very large crude carrier (VLCC) to transport 2 million barrels of US crude from the Gulf Coast to Asia stood at about $44.8 million as of Tuesday, a record high and up from $39 million a day earlier.

Before the war with Iran began, the cost of shipping crude along the route was around $17.8 million.

As disruptions in the Middle East threaten energy supplies, US crude has become an important source for filling the resulting supply gap. Saudi Arabia’s earlier shutdown of its East-West oil pipeline has further heightened concerns about supply risks linked to the Strait of Hormuz.

Despite the sharp increase in freight costs, Asian buyers remain willing to pay more because US WTI crude remains competitively priced against alternative grades even after arriving in Asia.

According to research firm Kpler, six VLCCs are scheduled to load crude in the US Gulf Coast in October for delivery to Asia.

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