Oil prices experienced a modest increase on Monday following reciprocal strikes between the US and Iran over the weekend, which raised concerns among investors regarding the stability of their interim peace agreement and hampered shipping activities in the Strait of Hormuz. Brent crude futures increased by more than 0.8% to $72.58 a barrel, while US West Texas Intermediate crude futures rose nearly 1.3% to $70.11 per barrel, as observed at 7.18 am on Monday. This development follows a nearly 11% decline in Brent crude last week, marking its third consecutive week of losses. This downturn coincides with an increase in crude shipments through the strait, reaching their highest levels since the onset of the US-Israeli conflict with Iran earlier this year. However, traffic has decelerated once more in the region following a resurgence of attacks on vessels in the Strait beginning Thursday, signifying the most severe escalation since the US and Iran entered into an interim peace agreement.

US President Donald Trump stated on Saturday that Iran would “no longer exist” if the US were “forced” to resume the war. “United States aircraft just struck Iranian missile and drone storage locations, and coastal radar sites, for violating the Cease Fire Agreement, AGAIN!” Trump wrote on Truth Social. On Sunday, US Central Command reported that it had conducted strikes on 10 Iranian military targets in response to ongoing Iranian aggression towards commercial shipping. Iran stated that it had executed retaliatory strikes against US bases located in Kuwait and Bahrain. “Any attempt to adopt new or separate arrangements compared to what is underway by the Islamic Republic of Iran, will only lead to more complicated situations and delays in the reopening of the Strait of Hormuz, and will increase the tensions,” Iranian Foreign Minister Abbas Araghchi said. “I urge all parties… to adhere to the memorandum of understanding and not to allow this MoU to deviate from its course,” he further said.

Iran’s Revolutionary Guards announced that they are implementing measures to regulate traffic in the vital waterway, asserting that vessels that violate these measures will face stricter enforcement than previously encountered. Israel has initiated strikes in Lebanon following Hezbollah’s leader Naim Qassem’s rejection of a proposed deal to resolve the ongoing conflict. All these developments heighten concerns among investors regarding shipping through the Strait of Hormuz, a narrow 33-kilometre waterway linking the Persian Gulf with the Gulf of Oman, which facilitates over 20% of the world’s daily oil and gas shipments.

The closure earlier this year resulted in oil prices soaring to levels exceeding $120 per barrel. “Despite the ⁠U.S.-Iran deal marking an inflection point for oil markets, physical flows are constrained by tanker backlogs, damaged infrastructure and production shut-ins,” as quoted by analysts. “It could take the remainder of the year before supply is near pre-conflict levels,” they further said. “The market is likely to re-evaluate its assumption of a quick recovery of oil supply from the ⁠Persian Gulf,” they further said.