Oil prices continued to rise sharply on Monday, rising 3% to almost $108 per barrel as new developments in the Middle East alarmed investors about worsening disruptions to the world’s energy supply throughout the war. Saudi Arabia and Iranian attacks on ships in the Gulf have heightened supply concerns in the wake of the closure of a key Saudi oil pipeline. On Sunday, Saudi Arabian state media disseminated video footage depicting damage to residences and a mosque, attributing the destruction to a Houthi assault in the southern Jazan province of the country. The Houthis reported that they had also targeted a Saudi military base in a neighbouring province. An Iranian cargo vessel was struck on Sunday in the Strait of Hormuz, according to Iranian state media. Iran subsequently delayed a scheduled briefing for its neighbouring countries regarding its initiatives to regulate shipping in the strait.

There was no immediate response from the US military, which has targeted Iranian-flagged vessels amid its blockade of Iranian ports and now contends with a renewed threat from Iranian ballistic missiles aimed at its warships. Iran’s government meanwhile continues to remain defiant. “Our people can’t be bullied into submission. Iran won’t surrender,” President Masoud Pezeshkian said in a social media post. US President Donald Trump disagreed, saying that Iran “wants to make a deal so bad” that “they are calling constantly.” Brent crude futures experienced an increase of approximately 3%, trading close to $108 per barrel. WTI Crude futures, in a notable upward movement, increased by approximately 3%, trading close to $103 per barrel. The significant increase in oil prices today was anticipated. Amid rising tensions, apprehensions regarding supply risks from Saudi Arabia, the leading oil exporter globally, intensified.

This concern was exacerbated by the closure of its East-West oil pipeline on Friday due to a drone strike originating from Iraq, which further unsettled investors. The loss of the pipeline, which facilitated Saudi Arabia in re-routing its exports to bypass the Strait of Hormuz, poses a risk to approximately 4% of the global oil supply. Oil experienced an 8% increase last week as a result of the disruptions, surpassing the $100 mark for the first time since July. Looking ahead, unless talks in Oman yield operational results, or the East-West pipeline is swiftly restored, the risk remains that crude oil prices may continue to rise toward the near $120 per barrel high observed in early March, as noted by market analyst Tony Sycamore. Goldman Sachs has delineated a scenario wherein oil prices might escalate to $120 per barrel should assaults on Middle Eastern vessels amplify. If exports return to normal, however, the bank anticipates oil prices to trend back toward $80 a barrel.

Struyven indicated that risks associated with shipping have emerged as a significant factor influencing oil prices. Daan Struyven indicated that the recent attacks imply a potential escalation in shipping disruptions, which could become more widespread and severe. JPMorgan estimates that each additional month of disruption could contribute approximately $7 to $8 per barrel to Brent prices. If the disruption persists for three months, the bank anticipates that average monthly Brent prices will approximate $114 per barrel. Citi has adjusted its average Brent crude price forecast for the third quarter to $86 a barrel, up from $80, attributing this revision to a longer-than-anticipated timeline for the reopening of the Strait of Hormuz.