Oil supertanker costs in the Middle East climbed to their highest level on record as conflict between the U.S. and Iran disrupts shipping through the strategically vital Strait of Hormuz.

Major marine war risk providers have started to scrap cover for vessels operating in the Persian Gulf as the fallout from a sudden security shock hobbles key shipping routes in the region.

The benchmark freight rate for Very Large Crude Carriers (VLCCs) — used to ship 2 million barrels of oil from the Middle East to China — hit an all-time high of $423,736 per day on Monday, data from LSEG showed. That marked an increase of more than 94% from Friday’s close.

Alongside a significant jump in oil and gas prices, the stratospheric rise in the cost of hauling crude oil follows the U.S. and Israeli attacks on Iran over the weekend. The expanding conflict has resulted in the effective halt of shipping traffic through the Strait of Hormuz — one of the world’s most important oil choke points, located in the gulf between Oman and Iran.

An Iranian Revolutionary Guards senior official said Monday that the Strait of Hormuz had been closed and warned any vessel attempting to pass through the waterway would be attacked, state media reported. The claim has since been disputed by the U.S. military’s Central Command, CENTCOM, Fox News reported.

“Charterers in the VLCC segment stepped back from the market and avoided securing vessels as multiple incidents have led to increased threat levels around the strait of Hormuz, despite the waterway not being officially closed,” Sheel Bhattacharjee, head of freight pricing in Europe at Argus Media, told CNBC by email.

Oil producers in the Middle East have not yet announced a halt to any production or loading yet, and ports in the UAE, Oman and Kuwait remain operational, Bhattacharjee said, citing market sources.

“But most shipowners were avoiding transits through the strait of Hormuz after insurers cancelled the war risk coverage for vessels in certain areas of the region,” Bhattacharjee said.

It is estimated that roughly one-third of seaborne crude oil trade moves through the strategically important waterway, alongside 19% of global liquefied natural gas (LNG) flows and 14% of global refined products trade, according to Argus Media.

Leading maritime insurers have canceled war risk cover for vessels operating in the Middle East over recent days, amid reports of attacks on multiple ships traversing through the Strait of Hormuz.

Alongside the New York-based American Club, marine insurers including Norway’s Gard and Skuld, Britain’s NorthStandard and the London P&I Club said they were scrapping war risk cover for ships in the region.

Adrian Beciri, CEO of DUCAT Maritime, a Cyprus-based logistics firm specializing in dry bulk, said the knock-on effects of the sprawling Middle East conflict were being felt across the globe.

“We were trying to hire a dry bulk vessel to carry our typical rice food supplies to West Africa, which is around the Cape of Good Hope. You would think that is a million miles away from the conflict zone,” Beciri told CNBC’s “Squawk Box Europe” on Tuesday.

“We actually lost the ship. Someone had paid 50% more than they typically would do to carry coal from Indonesia to the west coast of India. Why did that vessel attract such a high rate? The answer is because the vessel owner was uncertain of getting cargo from the Persian Gulf area,” he continued.

“So, the consequences are far and wide, and this is potentially a double whammy. If we’re looking at the Hormuz closing and the Suez effectively being tampered with by the Houthis, this could be quite significant — much like what we saw during the Covid era and the attacks that were happening there.”

Even if oil tankers are only temporarily blocked from the Strait of Hormuz, it can ratchet up global energy prices, raise shipping costs and create significant supply delays.

The Strait of Hormuz is also key for global container trade. Ports in this region, such as Jebel Ali and Khor Fakkan, are specialized transshipment hubs that serve as intermediary points in global networks.

Shipping giants, including MSC, Maersk, Hapag-Lloyd and CMA CGM, have also issued fresh guidance, seeking to prioritize safety amid a deteriorating security situation.

The U.S. and Iran are poised to hold further nuclear talks in the Swiss city of Geneva on Thursday, amid persistent fears about the prospect of military action in the oil-rich Middle East.

The upcoming round of negotiations over the future of Tehran’s nuclear program come as the U.S. continues to build up military forces in the region and as President Donald Trump warns of “bad things” if Iran doesn’t agree to a nuclear deal.

The U.S. president on Tuesday spoke briefly about Iran during his nearly two-hour State of the Union address but primarily focused on domestic policy and other political issues.

“We are in negotiations with them. They want to make a deal, but we haven’t heard those secret words: ‘We will never have a nuclear weapon,'” Trump said.

“My preference is to solve this problem through diplomacy. But one thing is certain, I will never allow the world’s number one sponsor of terror, which they are by far, to have a nuclear weapon.”

For some, the comments boosted expectations of an imminent diplomatic breakthrough.

Trump “basically wants the optics of a win, which is why he talks about why he’s ended eight wars. I think it’s pretty clear he hasn’t. He has helped navigate, you know, skirmishes … but he hasn’t ended these conflicts,” said George Pollack, U.S. policy analyst at Signum Global Advisors.

“For him, I think it is more about how he’s exerting U.S. strength, U.S. force and trying to make the world more peaceful but that’s more optics than it is a substantive policy,” Pollack told CNBC’s “Europe Early Edition” on Wednesday.

“And that’s why, for us, we do think this Thursday meeting will likely be a success and bring about some more diplomatic opportunities,” he added.

For others, however, the absence of a deal means the likelihood of military action appears to be both high and growing.

“President Trump’s 10-to-15-day deadline for Iran works out to a date sometime in very early March,” strategists at Dutch bank ING said in a note published Wednesday.

“This uncertainty means the market will continue to price in a large risk premium and remain sensitive to any fresh developments,” they added.

Iranian Foreign Minister Abbas Araghchi said on social media Tuesday that the country would resume talks with the U.S. in Geneva this week “with a determination to achieve a fair and equitable deal — in the shortest possible time.”

Araghchi added: “Our fundamental convictions are crystal clear: Iran will under no circumstances ever develop a nuclear weapon; neither will we Iranians ever forgo our right to harness the dividends of peaceful nuclear technology for our people.”

Oil prices traded near seven-month highs on Wednesday morning as energy market participants continued to closely monitor potential supply disruptions.

International benchmark Brent crude futures with April delivery rose 0.6% to $71.13 a barrel, while U.S. West Texas Intermediate futures with April delivery, traded 0.6% higher at $66.02.

Iran, a member of OPEC, is a major player in the global oil market, producing more than 3 million barrels of crude a day.

The Islamic Republic has recently conducted military drills in the strategically important Strait of Hormuz, as well as joint naval drills with Russia in the Gulf of Oman, also known as the Sea of Oman.

Oil prices hovered near six-month highs on Friday after U.S. President Donald Trump warned Iran that “really bad things” will happen if there was no deal over its nuclear program.

International benchmark Brent crude futures with April delivery traded 0.2% lower at $71.53 per barrel at around 9:24 a.m. London time (4:24 a.m. ET), erasing earlier gains, while U.S. West Texas Intermediate futures with March delivery stood 0.2% lower at $66.30.

Both contracts notched their highest settle in six months in the previous session as energy market participants continue to monitor supply risks in the oil-rich Middle East.

The U.S. and Iran have held talks in Switzerland this week to try to resolve a standoff over Tehran’s nuclear program. Initial reports of progress, however, gave way to accusations from Washington that Iran had failed to address core U.S. demands.

Speaking at the first meeting of his Board of Peace in Washington on Thursday, the U.S. president said “bad things will happen” if Tehran doesn’t agree to a deal over its nuclear program.

Trump added that the world will likely find out over the next 10 days whether the U.S. will reach a deal with Iran or take military action. He later told reporters aboard Air Force One that he wanted an agreement within “10 to 15 days.”

His comments come after a significant buildup of U.S. military forces in the Middle East and amid reports the White House is considering fresh military action against Tehran as soon as this weekend.

Trump said Iran’s nuclear potential had been “totally decimated” by U.S. strikes on its facilities in June last year, before adding “we may have to take it a step further or we may not,” without providing further details.

Iran reportedly said in a letter to United Nations Secretary-General Antonio Guterres on Thursday that Tehran will respond “decisively” if subjected to military aggression.

The Islamic Republic has conducted military drills in the strategically vital Strait of Hormuz in recent days, as well as joint naval drills with Russia in the Gulf of Oman, also known as the Sea of Oman.

“Everything is in place, or will be by Saturday night, for strikes to commence and so the window opens then,” Daniel Shapiro, former U.S. ambassador to Israel, told CNBC’s “Access Middle East” on Friday.

“Doesn’t mean that’s going to happen immediately. The president did indicate that he is waiting to hear from Iran whether they are prepared to make concessions on their nuclear program that he’s insisting on,” Shapiro said.

“I think it’s unlikely. We have never seen Iran open to those types of concessions, so I think it is unlikely they will agree to those, which means that in the days coming, the president will have to make that decision on military strikes,” he added.

The Trump administration has said it still hopes to reach a diplomatic resolution over Tehran’s nuclear program, with White House press secretary Karoline Leavitt saying on Wednesday that it would be “very wise” for Iran to make a deal.

Martijn Rats, chief commodity strategist at Morgan Stanley, said that, while the oil market is “very well supplied” on a global basis, there are three factors propping up prices.

“Worries about Iran, clearly. Also, an unusually large amount of buying by China, simply for stockpiling purposes. It makes you wonder what they are going to do with all these inventories and then also we have very high freight rates,” Rats told CNBC’s “Europe Early Edition” on Friday.