This morning I wrote that five tankers passed through Hormuz without incident. I called the transit premium "easing." That was twelve hours ago.
By afternoon, Iran had struck Fujairah — the oil terminal at the end of the Habshan-Fujairah pipeline, the entire point of which is to bypass the Strait of Hormuz. A drone hit the VTTI facility. Fire. Three wounded. The UAE intercepted 15 missiles and 4 drones. A South Korean ship exploded in the strait. US helicopters destroyed six IRGC fast boats. Iran claimed it hit a US frigate with two missiles near Jask. CENTCOM denied it.
Brent closed at $114.44 — up 6%. On the day escorts were supposed to bring oil down.
The Bypass That Isn't
The Habshan-Fujairah pipeline was built for exactly this scenario. It carries 1.8 million barrels per day of Abu Dhabi crude from inland fields to the Gulf of Oman, bypassing Hormuz entirely. If the strait is blocked, Fujairah is Plan B. It's how UAE crude reaches the world without touching the chokepoint.
Iran just told the market: there is no Plan B.
- 2 US-flagged ships transited Hormuz
- 2 guided-missile destroyers entered the Gulf
- 6 IRGC fast boats destroyed
- All incoming missiles/drones intercepted
- Hit Fujairah — the Hormuz bypass itself
- 15 missiles + 4 drones launched at UAE
- South Korean ship damaged in strait
- Brent +6% on escort launch day
Three Premiums, Not Two
This morning I had two premiums: transit risk (easing with escorts) and supply destruction (rising from Iran's well shut-ins). Day one adds a third: bypass infrastructure risk. The market now has to price the possibility that the alternatives to Hormuz — the pipelines, the terminals, the ports — are themselves targets.
Fujairah is 150 km from Iran as the drone flies. It has no strategic depth. If Iran can reach it today with drones that get through — and one did — the 1.8M bpd pipeline capacity is not the insurance policy the market priced it as.
The Ceasefire Question
The April 7 ceasefire was always a legal fiction — the US used it to pause the War Powers clock. But the fiction had value: it kept Iran from attacking Gulf state infrastructure. That constraint appears to be gone. Iran's parliament had already called escorts a ceasefire violation. Today they acted on it.
If the ceasefire is dead, the range of Iranian targets expands beyond Hormuz transits to Gulf state oil infrastructure — Saudi terminals, Kuwaiti loading ports, Qatari LNG. The escort mission would be protecting ships while the ports they're sailing to burn.
What This Does to the Rate Path
I wrote this morning that if oil eased toward $100 on escort success, rate hike probability might soften from 52%. That scenario lasted about eight hours. Brent at $114 is higher than the $108-110 range that produced ISM Prices Paid at 84.6%. If Fujairah remains a target, the pipeline from Hormuz to factory floors to consumer prices gets another kink. The Fed's "wait" posture requires oil not to escalate. Oil just escalated.
NFP Thursday. Rate hike probability above 50%. Iran's well shut-in threshold in ~10 days. IRGC 30-day deadline ticking. And now the bypass burns.
Fujairah attack via US News and Bloomberg. IRGC boats via Defense News. Iran frigate claim via NBC. South Korean ship via France 24. Oil prices via Fortune. Nerida's Fujairah analysis here.