Oil prices extended losses on Friday as investors evaluated Saudi Arabia’s proposal to spearhead a multinational maritime defence coalition designed to enhance security along critical Red Sea shipping routes. Saudi Arabia is aiming to lead a coalition focused on strengthening defence collaboration in the Bab El-Mandeb Strait, the Red Sea, and the Gulf of Aden. The Saudi defence ministry announced that a coalition of 14 nations, which includes Turkey, Pakistan, Egypt, Sudan, and Djibouti, has released a joint statement in support of the proposed maritime security alliance. Brent crude prices were observed at $88, reflecting a decline of 1.16% or $1.03 per barrel, whereas US West Texas experienced a decrease exceeding 2%, settling at $81.70 per barrel. In the previous session, Brent crude settled down $1.71, or 1.88%, at $89.03 a barrel, despite experiencing significant fluctuations throughout the session. The benchmark briefly climbed to an intraday high of $93.31 following renewed strikes between Washington and Tehran on each other’s military targets.

U.S. West Texas Intermediate crude futures declined by 87 cents, representing a decrease of 1.03%, to close at $83.59 per barrel, following a session peak of $85.94. The latest developments followed the announcement by Iran-backed Houthi militants in Yemen of a naval blockade on Saudi Arabia last week, posing a threat to shipping through the Red Sea, a vital route for Saudi oil exports and an alternative to the predominantly blockaded Strait of Hormuz. Meanwhile, Iran and Oman have persisted in their dialogues regarding the governance of the Strait of Hormuz, as reported by the source. On Wednesday, a senior Iranian official announced that Tehran had dismissed Oman’s proposal for collaborative management of the strategic waterway in the region. The Strait of Hormuz, through which approximately one-fifth of global oil and liquefied natural gas flows typically transit, has continued to be a central point of interest for energy markets since the United States and Israel initiated military actions against Iran on February 28. In another development, Egypt confirmed on Thursday that a drone strike was responsible for the fire aboard two gas vessels at the Mediterranean port of Damietta, thereby ruling out the possibility of an accidental blaze.

The confirmation followed an earlier assessment by British maritime security firm Ambrey, which stated on Wednesday that a drone had struck a U.S.-owned gas storage tanker docked at the port. This incident has raised fresh concerns regarding the potential for the conflict in the Middle East to escalate further, according to sources. The U.S. military reported that it had targeted numerous installations of the Islamic Revolutionary Guard Corps in Iran, a response to the ballistic missile assaults on American forces in the Middle East originating from Tehran. The U.S. military stated that no American aircraft were either destroyed or damaged during the recent attempted Iranian attacks. This assertion counters a claim made by Iran’s Revolutionary Guards, which alleged that three U.S. F-35 fighter jets and three additional aircraft had been destroyed. The trajectory of oil prices will be significantly influenced by the duration of the disruption. JPMorgan estimates that each additional month of supply disruption could contribute approximately $7 to $8 per barrel to Brent prices. A three-month disruption could elevate monthly average Brent prices to approximately $114 per barrel. Goldman Sachs has similarly cautioned that Brent may rise to $120 a barrel should shipping disruptions persist through the Strait of Hormuz, the preeminent oil transit route globally.

Its base case remains that tensions in the Middle East will ultimately subside. Under that scenario, Goldman Sachs anticipates that Brent will average $80 a barrel in the fourth quarter and $75 in the following year. However, the bank indicated that the risks to those forecasts remain “tilted to the upside,” highlighting the potential for ongoing shipping disruptions in both the Strait of Hormuz and the Red Sea. Anindya Banerjee stated that geopolitical developments were once again influencing crude oil prices. “Any strike on major Gulf export infrastructure could force a retest of $95-100 and beyond,” he stated. According to Banerjee, the market has redirected its attention from the military action to the diminishing prospects for a diplomatic resolution. Tehran has established new prerequisites for the resumption of negotiations, he noted, as ongoing developments have hindered the restoration of regular tanker traffic through the Strait of Hormuz. Shipping activity through the waterway continues to lag significantly behind pre-war levels. Tanker traffic through the Strait of Hormuz remains significantly below normal levels, maintaining the underlying supply risk even as immediate price pressures have eased.