Oil prices surged following the U.S.'s announcement of a reinstated blockade on Iranian ships in the Strait of Hormuz. West Texas Intermediate (WTI) crude traded near $74 a barrel, after previously rising to nearly $120 a barrel at the height of the conflict, while Brent crude traded above $79 a barrel, having gained 5.4% last week. This comes after an Iranian attack on a container ship sparked renewed tensions, causing fears of disruptions to the estimated one-fifth of the world's oil and gas that typically passes through the strait.
President Donald Trump declared on social media that the U.S. would be "reinstating the THE IRANIAN BLOCKADE," which he stated would only stop Iran's ships or its customers from entering or leaving the strait. He added that America would charge a 20% toll on eligible cargo to cover the costs of providing safety and security in the region. This move intensifies the conflict with Iran, as peace talks failed to deliver meaningful progress, raising fears of a return to all-out war and further disruption to the global economy.
The latest escalation casts doubt on efforts to revive negotiations between Washington and Tehran. Iran's Parliament Speaker and top negotiator Mohammad Bagher Ghalibaf stated that the "era of one-sided deals is OVER," and Tehran insisted that Washington fulfill commitments related to shipping through the Strait of Hormuz and the normalization of Iranian oil exports before broader talks could resume. U.S. Central Command (CENTCOM) confirmed President Trump ordered a third round of strikes this week targeting Iran's ability to threaten commercial shipping after the M/V GFS Galaxy suffered significant damage and a crew member went missing. The uncertainty is reintroducing a war premium into crude prices, risking efforts to rebuild depleted global oil inventories.
Traffic through the Strait of Hormuz, a critical waterway for about one-fifth of global crude and liquefied natural gas supplies, was almost nonexistent on Monday, extending a slowdown that began last week. While Iran declared the strait closed "until further notice," U.S. Central Command denied this, stating its forces initiated more attacks to ensure freedom of navigation. Saul Kavonic, a senior energy analyst at MST Marquee, noted that while the escalation is significant, it's "well short of all-out hostilities," and oil prices are likely to inch higher as long as strikes continue and passage through the strait remains hesitant. He also warned that if the conflict expands to broadly target energy infrastructure, oil prices could reach $100.
