Oil prices surged by over 3% on Tuesday, with Brent crude futures settling at $74.16 a barrel and US West Texas Intermediate crude at $70.44 a barrel. The increase followed Iran's attacks on three commercial vessels in the Strait of Hormuz and the subsequent US revocation of a general license authorizing the sale of Iranian crude oil. Post-settlement, Brent climbed to $75.88 and WTI to $72.20, with both benchmarks up more than 5% from the previous day's settlement prices. This escalation came despite a memorandum of understanding signed in June between the US and Iran aimed at ending the Iran war and reopening the Strait of Hormuz.
The US Treasury Department's decision to revoke Iran's oil sales license, which had been granted as a concession in the ceasefire agreement, was a direct response to the vessel attacks. This license had allowed Iran to openly sell crude oil on the international market for US dollars for the first time in years. The Treasury Department has given buyers until July 17 to wind down any ongoing transactions. Prior to the lifting of sanctions, Iran had relied on a "shadow fleet" to sell most of its oil, often to China. Analysts like Bob Yawger of Mizuho indicated that this move signals a "next level of breakaway from the memorandum of understanding," though he did not expect a lasting impact on Iran's export capabilities.
In conjunction with the sanctions, the US military launched "powerful" strikes against Iran, hitting over 80 targets, including more than 60 Islamic Revolutionary Guard Corps (IRGC) small boats in the Strait of Hormuz. US Central Command (Centcom) stated these strikes were "to impose heavy costs for targeting and attacking commercial shipping crewed by innocent individuals in an international waterway." Iran's foreign ministry condemned the US actions as a breach of the memorandum and responded with retaliatory attacks on US military sites in Bahrain and Kuwait. This series of events represents a significant challenge to the fragile ceasefire, raising concerns among investors about renewed volatility in oil markets and the potential for further disruptions in the Strait of Hormuz, which is crucial for global oil and LNG supplies.
