Oil prices surged over 5% on Wednesday following US airstrikes on Iran and the reinstatement of sanctions on Iranian crude oil sales, reversing expectations that global oil markets were heading into oversupply. Brent crude futures jumped $3.91, or 5.23%, to $78 a barrel, while US West Texas Intermediate (WTI) crude gained $3.66, or 5.17%, to $74 a barrel. These gains built on a 3% advance from Tuesday, triggered by the US withdrawal of the general license for Iranian crude sales. The swift reversal comes after a fragile ceasefire had initially led to a decline in prices, with traders reassessing their short positions amidst heightened geopolitical risk.
The latest escalation has refocused attention on the Strait of Hormuz, a critical waterway through which nearly one-fifth of global energy supplies typically pass. US Central Command confirmed the strikes were a response to Iranian attacks on three commercial vessels in the strait. Analysts, including Saul Kavonic of MST Financial, anticipate elevated oil prices due to hazardous conditions in the strait and the winding down of emergency oil stockpiles. Tony Sycamore, a market analyst at IG, noted that the incidents would keep markets on edge.
Adding to supply concerns, the US Treasury Department revoked a 60-day waiver that had allowed Iranian oil sales, with transactions now prohibited after July 17. Industry experts warn that normal operations in the Strait of Hormuz are unlikely to resume quickly, requiring coordinated efforts to restore traffic, repair infrastructure, and conduct de-mining operations. Saudi Aramco CEO Amin Nasser previously warned that prolonged disruption in the strait could delay market stability until 2027 and affect up to 100 million barrels of oil supply weekly.
ING analysts Warren Patterson and Ewa Manthey highlighted that Brent crude rose above $76 a barrel, with the curve structure returning to backwardation. They also noted that Ukrainian drone strikes on Russian refineries have intensified, further tightening the refined-product balance and supporting middle-distillate markets. US crude inventories, according to the American Petroleum Institute, fell by 400,000 barrels last week, with more significant draws in gasoline and distillate stocks, indicating firm demand alongside geopolitical risks.
The renewed tensions have led shipowners to remain cautious about resuming operations in the Strait of Hormuz and the broader Persian Gulf. Iran has also advised ships to use a route closer to its coastline, adding to safety concerns. These developments have fundamentally shifted market sentiment, with investors now bracing for sustained volatility and potential supply disruptions rather than a return to pre-conflict price levels and oversupply.
