Oil prices jumped significantly on Wednesday following President Donald Trump's declaration that the ceasefire agreement with Iran was effectively over, suggesting that the United States would "probably" launch additional military strikes. Brent crude futures climbed as much as 7% before paring gains, while West Texas Intermediate also saw a sharp increase. This upward movement reversed the earlier decline in oil prices observed during the second quarter, which had been driven by easing hostilities and the reopening of the Strait of Hormuz.
Trump's comments, made on the sidelines of the NATO summit in Ankara, came hours after U.S. forces reportedly struck more than 80 targets in Iran. The U.S. also revoked a sanctions waiver that had permitted Tehran to resume global oil exports following an interim peace agreement in June. The military actions followed a series of attacks on commercial shipping in the Strait of Hormuz, including a Qatari LNG carrier and two crude tankers, which Washington attributed to Iran. These events led Western naval forces to elevate the threat level for merchant shipping in the region from "substantial" to "severe."
Financial markets reacted broadly to the renewed geopolitical tensions. Alongside surging oil prices, global stocks and bond prices tumbled as investors moved away from risk assets. Benchmark 10-year U.S. Treasury note yields rose for a seventh consecutive day to a one-month high of 4.58%, while German and Italian 10-year bond yields also hit one-month highs at 3.075% and 3.9%, respectively. Analysts, such as Giovanni Staunovo of UBS Group, highlighted that renewed Middle East tensions and potential disruptions to oil exports were supporting prices.
Concerns are particularly high regarding the Strait of Hormuz, a crucial waterway for a significant portion of the world's seaborne crude oil and LNG exports. Khoon Goh, head of Asia research at ANZ in Singapore, emphasized the importance of the strait remaining open for continued oil flow. Iran has asserted its authority over parts of the strait, claiming transits require its approval. The Treasury's revocation of the sanctions waiver means millions of barrels per month of Iranian crude are now back in question, further tightening global oil supplies, which have already been depleted with the U.S. Strategic Petroleum Reserve reaching its lowest level since 1983.
