Oil Prices Rise as US-Iran Conflict Escalates and Strait of Hormuz Disruptions Deepen

Oil prices continued their rally on Wednesday amid roiling uncertainty over global energy supplies, as investors watch closely for a sign of more military action between the United States and Iran, one of the world’s most significant oil shipping lanes facing threats.

Brent crude futures were up 99 cents (1.2 percent) at $85.72 a barrel at 7:00 a.m. Saudi time, and US West Texas Intermediate (WTI) crude was 64 cents (0.8 percent) higher at $79.98 a barrel.

The increases come after the two indexes saw their largest one-day gains in a month after fresh attacks brought concerns about disruptions in the Strait of Hormuz to a boil on Tuesday. The strategic waterway was responsible for about 20 percent of the world’s oil and LNG transport before the fighting broke out.

The market was rattled by President Donald Trump’s re-imposition of a naval blockade of Iranian ports and U.S. strikes against what the military said were Iranian targets for attacking commercial shipping in the Strait of Hormuz.

Iran’s response came in the form of new military operations. The Iranian army stated it had attacked the positions of the Americans with drones at Azraq air base in the Jordanian desert, though the Pentagon has not immediately responded to its assertion. The Iranian Islamic Revolutionary Guards Corps (ICGC) also claimed to have targeted weapons and storage sites in Bahrain and Kuwait. It was not possible to independently verify those reports.

Tehran has also announced that it has once again closed the Strait of Hormuz, after a renewed outbreak of hostilities, fearing that one of the world’s busiest energy corridors will be disrupted for an extended period.

In a Tuesday night interview with Fox News, Trump hinted that energy infrastructure could be a next battleground in the fight.

I’ll leave the energy targets for last, but in the end, we’ll reach energy targets, the president said.

The physical market for oil is well supplied for the time being but further escalation could rapidly close the market, analysts said.

Phillip Nova’s senior market analyst Priyanka Sachdeva noted that any escalation from the current conflict around the Strait of Hormuz or any more restrictions on Iranian exports could contribute to more market uncertainty and higher prices.

In the event of escalation and a greater risk of energy infrastructure being destroyed throughout the Gulf, Brent crude could surge to $100 a barrel, said Tim Waterer, chief market analyst at KCM Trade. If there can be diplomatic measures to ease tensions and reopen the Strait of Hormuz, then prices could go back down to $75 to $80,” he said.

The renewed fighting has also raised questions about the memorandum of understanding signed last month that could provide the framework for a long-term peace as fighting have jeopardized regional stability and left global energy markets on edge.