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.

Global defense stocks jumped on Monday as investors reacted to a dramatic military escalation in the Middle East over the weekend.

The sector was a rare bright spot amid a broader market sell-off triggered by fears of a wider regional conflict.

Germany’s Hensoldt and Britain’s BAE Systems were among the top performers in the Stoxx 600, both up around 4%. Defense names Thales, Renk, and Leonardo rose between 4% and 1%, paring earlier gains, while the broader Stoxx 600 index fell more than 1%, touching a two-week low.

Stateside, U.S. firms Lockheed Martin and Northrop Grumman each rose more than 5% in premarket trading. Futures tracking the S&P 500 were down 1.1%.

With South Korean markets closed Monday, regional activity in Asia-Pacific defense sector was somewhat muted. Japan’s defense heavyweights Mitsubishi Heavy Industries and IHI rose about 3% each, while Singapore’s ST Engineering climbed 2.8%.

The moves come after the U.S. and Israel launched widespread attacks on Iran over the weekend that killed Iranian Supreme Leader Ayatollah Ali Khamenei, ending his 36-year rule. Retaliatory strikes by Iran against U.S. bases in the Middle East killed three U.S. service members.

Prospects of an escalation also led oil prices and energy companies’ shares to surge.

“It’s very much one of uncertainty at the moment that investors are grappling with,” said Patrick O’Donnell, Chief Investment Strategist at Omnis Investments.

“Equity markets are a little bit more uncertain about just how long this is going to drag on, for the implication for both growth and inflation that it will have the longer that it goes on,” O’Donnell told CNBC’s “Squawk Box Europe” on Monday.

“Really, it’s a question of… what’s the duration of this conflict?”

The conflict with Iran entered a third day on Monday, with U.S. President Donald Trump warning of further American casualties and saying the conflict could last for up to four weeks. 

In June last year, the U.S. and Israel launched air strikes that damaged three Iranian nuclear sites.

Carl Bildt, former Prime Minister of Sweden and co-chair of ECFR’s Council, said it was expected that Iran would strike back at the American military facilities in the Gulf region, “but now it seems like they are striking other targets across the Gulf as well.”

“That is surprising, but also highly disturbing, because, of course, the stability of the Gulf countries is important to us all, important to the global economy, important to the region,” he said.

Oil prices have soared after U.S. and Israeli strikes on Iran continued on Sunday night.

Brent crude prices hit a new 52-week high on Monday, surging 9.3% to reach $79.40, while U.S. West Texas Intermediate prices also rose more than 9% to $73.10.

U.S. President Donald Trump said the “overwhelming military offensive” — which he has dubbed Operation Epic Fury — would continue until the U.S.’s objectives are achieved. Israel launched fresh strikes against both Iran and against Hezbollah targets in Lebanon late on Sunday, which came after Iran attacked military and infrastructure targets across several countries in the region.

As the U.S. continues to target Iranian air defense systems and naval capabilities, global oil supplies have come into sharp focus.

Amrita Sen, founder and director of research at Energy Aspects, told CNBC on Monday that she expects oil prices to likely hold at around $80 level for some time.

Sen said that it is unlikely that the Strait of Hormuz — through which 13-15 million barrels, or 20% of global supply, of oil flows — would be closed altogether. She added that the bigger risk stems from one-off attacks on vessels passing through the area.

Sen said that the U.S. and Israel have the superior military power to ultimately neutralize Iran’s ability to completely shut off the Strait, a key shipping channel for oil producers such as Saudi Arabia, the UAE, Iraq, Iran, and Kuwait.

But single attacks on ships are more difficult to prevent. “This is something we’ve warned right throughout to our clients,” she said.

After three tankers were hit over the weekend, shippers are now being extremely cautious about going in, she added.

“That is the biggest issue right now — how do Asian refiners actually get the volumes from the Middle East?” Sen added.

She noted that Oman and certain UAE grids can bypass the Strait, while Saudi Arabia has contingency plans to move its oil through the East-West pipeline via the Red Sea.

“But even if you are able to move 5 million out through other methods, about 10 is still stuck,” she added.

Sen added that, if energy infrastructure is hit, the price of oil could hit $100.

She added that “the stakes are just too high” when it comes to potential attacks on infrastructure.  

There were plenty of reasons for investors to be on edge in the current setup for stocks even before the U.S. and Israel launched a major military campaign against Iran over the weekend.

The month of February, and midterm election years in particular, have a history of being bad for stocks. The cash drain among the mega-cap tech stocks that have led the market for years has been stressing heady market valuations, with Amazon headed back to a negative free cash flow situation and Alphabet dipping deeply into the bond market to finance its data center buildout — and it is far from alone in seeking debt market financing related to AI. The threat from AI to sectors across the market was walloping companies from software to trucking to commercial real estate as new worst-case scenarios were theorized on an almost daily basis.

All of that resulted in an S&P 500 that has gone nowhere this year, with a return of less than one-half of one percent for an index that is likely to see more volatility in the week ahead. But after three years of gains — and even before the uncertainty of a prolonged war in the Middle East and the prospect of $100 oil tipping the global economy into recession — a few months of sideways trading was not a shock to investors. They have been increasingly moving away from bonds as the primary hedge against the stock market and it’s not just gold, up another 20% this year, that has boomed. Investors have been turning to options-based exchange-traded funds in increasing numbers over the past few years as a result of fears about the sustainability of the stock market’s run combined with the need to generate income among many older Americans.

According to ETF Action founding partner Mike Akins, one of the most notable splits in the ETF world is between the heavy use of “the big box categories,” core stock and bond index funds, by institutional investors — where as much as 60-70% of ownership is institutional — versus the ownership of “non-traditional” ETFs in areas that have now grown to include many options-based ETF strategies and has been one of the biggest product development trends in recent years. There has been an estimated $170 billion invested in “synthetic income” ETFs which use options to focus on generating income, and $100 billion in “buffer” ETFs that use options to focus on downside protection — with most of the assets coming from retail investors or investment advisors for their individual investor clients, Akins said on the most recent episode of CNBC’s “ETF Edge.”

According to Tidal Financial Group senior vice president of product development Aga Kuplinska, the market is in the “overlay everything” phase as issuers take any underlying asset class or strategy and layer on options for income and hedging. It’s no longer just in areas where the search for income has long been a focus, such as dividend stocks, but for areas of the market long associated more typically with the search for growth, like tech stocks. “Income has been the No. 1 selling point and will remain so going into future because the demand for yield just doesn’t go away and during uncertain market conditions the added benefit of income seems to resonate well with investors,” she said on “ETF Edge.”

While institutions have long used similar strategies, the availability of the options-based strategies in an ETF wrapper has made it more efficient for retail investors to access this approach, and Akins warned that “in some respects, with synthetic income in particular, we’ve gotten to the Wild West in terms of what we can do.”

The ETF experts said there are successful examples of fund companies generating both maximum income for investors from these strategies and those generating a more conservative level of income. In the tech stock-concentrated Nasdaq 100 synonymous with the Invesco QQQ ETF (QQQ), for example, there are options-based ETFs that have performed well amid the tech tumult and have been a “nice solution for investors to generate income off a more volatile strategy while still getting upside,” Akins said.

Nevertheless, Kuplinska added that investors need to start from the understanding that “there is no free lunch in options income. The more income, the more upside you typically give up.”

Akins said that some of the yields on offer are so high investors need to understand what it means for a fund’s net asset value. With some ETFs indicating yields or distribution rates at almost 100%, in effect that means almost equivalent erosion of the fund’s net asset value — otherwise known as a “yield trap.” The range of yields in this growing strategic ETF niche is wide — with some ETFs targeting 5-8% and others 8-12%, as well as those verging on 100% — but it is a signal that “lots of education has to be done,” Akins said.

Kuplinska said with any derivatives-based income or hedging ETF strategy, what is taking place behind the scenes at the investment manager running the fund is very important, from regulatory and compliance protocols to the sophistication level of the trading desk. “These are incredibly difficult strategies to back test,” she said on the podcast portion of “ETF Edge.” She noted these ETFs are all subject to regulatory requirements to calculate risk on a daily basis, but she added, “Anything can be a weapon of mass destruction if not used as intended or properly.”

After the the past few years of rapid launches within this ETF category, “white space is much harder to find,” Kuplinska said. Options-based investing has “been done on everything out there,” she added. But she does think one more wave of options-based ETFs is coming and it will be less about the chase for maximum yield levels and designed more to focus on income stability and risk control. 

You can watch their conversation from the most recent “ETF Edge” above to learn more about proper use of options-based ETFs.

Disclaimer

Travelers are stranded as far away as Australia, Brazil and the Maldives after the U.S. and Israel launched strikes on Iran this weekend. With airspace in the region still closed, getting home could be a challenge at least several days.

Here’s what to know:

Anthropic’s Claude artificial intelligence assistant app jumped to the No. 2 slot on Apple’s chart of top U.S. free apps late on Friday, hours after the Trump administration sought to block government agencies’ adoption of the startup’s technology.

The rise in popularity suggests that Anthropic is benefiting from its presence in news headlines, stemming from its refusal to have its models used for mass domestic surveillance or for fully autonomous weapons.

“The Leftwing nut jobs at Anthropic have made a DISASTROUS MISTAKE trying to STRONG-ARM the Department of War, and force them to obey their Terms of Service instead of our Constitution,” President Donald Trump wrote in a Friday Truth Social post.

Department of Defense Secretary Pete Hegseth said he asked that Anthropic be labeled as a supply-chain risk to national security, and therefore, no U.S. defense contractor would be able to draw on Anthropic tools.

“It is the Department’s prerogative to select contractors most aligned with their vision,” Anthropic CEO Dario Amodei said in a statement. “But given the substantial value that Anthropic’s technology provides to our armed forces, we hope they reconsider.”

Historically, other AI chat apps have been more popular among consumers than Claude. OpenAI’s ChatGPT sat at No. 1 on the App Store rankings on Saturday, while Google’s Gemini was at No. 3.

The Claude iOS app has gained momentum this month. On Jan. 30, it was ranked No. 131 in the U.S., and it bounced around the top 20 for much of February, according to data from analytics company Sensor Tower. The data shows ChatGPT has held on to the No. 1 spot for most of February.

In the past year, Anthropic — which was formed in 2021 by former OpenAI employees — has gained momentum as a supplier of models for coding and general corporate use. OpenAI, whose ChatGPT now has over 900 million weekly users, has been responding to Anthropic’s surge in business by striking partnerships with consulting firms such as Accenture and Capgemini.

On Friday night, OpenAI CEO Sam Altman said the startup had reached an agreement with the U.S. Defense Department on the deployment of its models.

Hours later, pop singer Katy Perry posted a screenshot of Anthropic’s Pro subscription for consumers, with a heart superimposed over it.

WATCH: Sec. Pete Hegseth directs Pentagon to designate Anthropic supply-chain risk