Oil prices increased on Tuesday as renewed hostilities between the U.S. and Iran in the Middle East rekindled worries about possible supply interruptions from the globe’s primary crude-producing area. U.S. President Donald Trump on Monday issued a warning of additional strikes against Iran following a direct exchange of attacks between the two nations for the first time in a month on Sunday. The development has intensified tensions in a conflict that had recently transitioned into an economic standoff. Brent crude futures increased by 70 cents, representing a 0.75% rise, reaching $91.20 per barrel. Meanwhile, U.S. West Texas Intermediate crude saw an uptick of 93 cents, or 1%, bringing it to $87. The gains followed a robust session on Monday, during which Brent settled 2.7% higher, while WTI experienced a 3% increase and briefly attained its highest level since August 21.
The recent escalation has reintroduced the prospect of Iranian retaliation, heightening concerns regarding potential harm to energy infrastructure in the Gulf and generating new uncertainty surrounding shipping routes through the Strait of Hormuz. Mediation efforts by countries such as Qatar and Oman aimed at reaching an agreement to facilitate the reopening of the Strait of Hormuz have, to date, yielded minimal progress. The waterway, which transported approximately one-fifth of global oil supplies prior to the onset of hostilities in late February, was closed by Iran following the attacks by the U.S. and Israel on February 28.
The risks to shipping and oil supplies were highlighted on Tuesday when the United Kingdom Maritime Trade Operations agency reported that a tanker had been struck by three projectiles while navigating out of the Strait of Hormuz. No casualties or environmental impact were reported, according to a report. The duration of the disruption will be a critical determinant for crude markets. JPMorgan estimates that each additional month of disruption could elevate Brent prices by approximately $7 to $8 per barrel. If the disruption lasts three months, the bank anticipates average monthly Brent prices to hover around $114 a barrel. Goldman Sachs has issued a cautionary note regarding the potential for Brent prices to escalate to $120 a barrel should shipping disruptions through the Strait of Hormuz, the globe’s most critical oil transit corridor, continue.
Its base case, however, posits that tensions in the Middle East will ultimately subside. The bank anticipates that Brent will average $80 a barrel in the fourth quarter and $75 a barrel in the following year, while also noting that risks are tilted toward the upside should disruptions in the Strait of Hormuz and the Red Sea extend beyond expectations. Ponmudi R stated that crude prices would remain closely linked to developments surrounding the Strait of Hormuz. He stated that a sustained recovery in shipping flows could further reduce the geopolitical premium in crude and offer relief to emerging-market equities, while renewed disruptions could swiftly reverse that trend.
