Oil prices saw a significant jump today as the conflict between the US and Iran over the Strait of Hormuz intensified. Brent crude was up over 3%, soaring to more than $79 a barrel, while West Texas Intermediate traded near $74. This surge erased recent gains that followed an interim peace deal, as the renewed hostilities reintroduced a war premium into crude prices.
President Donald Trump announced that the US is reinstating its naval blockade on Iran and will charge a 20% toll on all cargo shipped through the Strait of Hormuz. He stated that the US would become "THE GUARDIAN OF THE HORMUZ STRAIT" and that these charges would reimburse the US for the costs of ensuring safety and security in the volatile region. Trump clarified that this blockade, termed "THE IRANIAN BLOCKADE," specifically targets Iranian ships or their customers, allowing other countries fair use of the strait, though Iran claims the right to manage all traffic.
The escalation followed another wave of strikes, with the US military hitting dozens of targets to degrade Iran's ability to attack commercial shipping. Iran, in turn, reported four fatalities and retaliated with drone and missile attacks on American allies, including Kuwait, Jordan, and Qatar. Over the weekend, Iran declared the strait closed, a claim disputed by the US, which insisted traffic was flowing. This ongoing conflict has cast significant doubt on the preliminary agreement from June meant to end the four-month conflict and reopen the strait, with Iran's Parliament Speaker stating the "era of one-sided deals is OVER."
Around a fifth of the world's oil and gas supplies typically pass through the Strait of Hormuz. The current tensions have caused traffic through the strait to become almost nonexistent, exacerbating concerns about global oil inventories. Analysts like Saul Kavonic from MST Marquee noted that while the current situation is escalatory, it's "well short of all-out hostilities," and oil prices are likely to inch higher as long as the strikes continue and passage through the strait remains hesitant. The International Energy Agency warned that these developments risk derailing efforts to rebuild depleted global oil inventories later this year.
European natural gas futures also rose by as much as 2.7% due to worries that the escalation could disrupt shipments from Persian Gulf producers. There are concerns that if the conflict expands to target energy infrastructure more broadly, oil prices could reach $100 a barrel. This situation develops against the backdrop of an attack on a Kuwaiti oil drilling facility, marking the first direct strike on oil infrastructure in weeks.
