Oil prices surged as renewed military strikes between the US and Iran reignited a "war premium" on crude. Brent crude traded above $79 a barrel after a 5.4% gain last week, while West Texas Intermediate (WTI) was near $74. The escalation follows an interim peace deal that had previously eased prices and offered the prospect of increased supply from the Persian Gulf. The International Energy Agency warned that the flare-up risks derailing efforts to rebuild depleted global oil inventories later this year.
The conflict saw Iran declare the Strait of Hormuz closed "until further notice," a statement countered by US Central Command, which stated its forces launched more attacks to ensure freedom of navigation. These strikes, the fourth by the US in a week, were reportedly in response to an Iranian attack on a Cyprus-flagged container ship, the M/V GFS Galaxy. CNN also reported that the Islamic Revolutionary Guard Corps fired at commercial vessels, with US aircraft intercepting an Iranian cruise missile and attack drone. Traffic through the strait, which normally handles about a fifth of global crude and liquefied natural gas supplies, was nearly nonexistent on Monday, extending a slowdown since tensions flared last week, though the Joint Maritime Information Center said the southern shipping lane coordinated by Oman remained available.
The latest escalation has dimmed prospects for diplomacy. Iran's Parliament Speaker stated the "era of one-sided deals is OVER," while Tehran insisted Washington honor prior commitments on Hormuz transits and the normalization of its oil exports before talks resume. President Donald Trump declared the ceasefire "OVER" but expressed willingness for continued negotiations. Analysts, like Saul Kavonic of MST Marquee, characterized the situation as escalatory but "well short of all-out hostilities," predicting oil prices would inch higher as long as strikes continue and strait passage remains hesitant. European natural gas futures also rose by as much as 2.7%.
A key concern is the potential for the conflict to expand to target energy infrastructure. An attack on a Kuwaiti oil drilling facility marked the first direct strike on oil infrastructure in weeks. Kavonic warned that if the conflict broadens to target energy infrastructure more extensively in the region, oil prices could reach $100 a barrel. In the past month, Persian Gulf producers, including the UAE, had increased crude marketing after the interim agreement eased export concerns, with the Emiratis notably using shuttle tankers to move oil.
While the market saw oil prices return to pre-conflict levels after a memorandum of understanding was signed last month, the latest re-escalation shows the fragility of that assumption, according to Fabien Yip from IG. Mukesh Sahdev of XAnalysts anticipates Brent prices to remain in the upper $70s during August and September due to heightened geopolitical uncertainty. However, he does not expect a repeat of earlier spikes, as demand recovery remains slow, and releases from stranded tankers and expanded OPEC+ output quotas continue to add barrels to an already oversupplied outlook.
