Oil prices initially surged but then pared gains, with Brent crude futures trading at $84.28 a barrel, up $0.78, and West Texas Intermediate around $80.25 a barrel. This volatility followed a flurry of strikes between the US and Iran over alleged violations of a two-week-old interim peace deal. US forces targeted Iranian military facilities in response to perceived aggression against commercial shipping, while Iran responded with attacks on US military sites in Kuwait and Bahrain.
The recent escalation began with attacks on a cargo ship on Thursday and a Panama-flagged tanker on Saturday, both attributed to Iranian drones. These incidents prompted the US Central Command to launch "fresh strikes" against Iranian surveillance, communications, air defense, drone storage, and mine-laying facilities. The Strait of Hormuz, a critical shipping route for one-fifth of global oil and LNG supplies, had only recently begun to reopen after months of disruption caused by the four-month-old conflict.
Iran, which seeks to assert control over the strait, wants ships to use a northern route through its waters and charge fees, while Washington promotes a southern lane along the coast of Oman. The resumption of attacks has raised anxieties about the security of shipping and the flow of oil from the Persian Gulf, even as hundreds of previously blockaded oil tankers began leaving the Gulf, causing oil prices to dip close to pre-war levels. There is concern that the conflict in Lebanon could also threaten the interim agreement, which requires an end to fighting on all fronts for further talks on issues like Iran's nuclear program and sanctions.
Despite the heightened tensions and exchange of strikes, the US has indicated that mediated talks are still on track for the coming days. Pakistan, a key mediator, has confirmed talks will resume Tuesday between the US and Iran regarding the interim deal. However, Iran's Foreign Minister warned that continued US attacks could lead to a "complete halt" in negotiations.
