Oil prices are elevated, with Brent crude reaching almost $88 per barrel, marking its largest weekly gain since April. This surge is attributed to intensifying US-Iran strikes across the Middle East, which heighten concerns over prolonged supply disruptions and attacks on regional energy infrastructure. The renewed violence has particularly impacted the Strait of Hormuz, a crucial oil transit chokepoint, with Iran's Islamic Revolutionary Guard Corps Navy reportedly stopping vessels and warning that transit would require Iranian coordination.
The conflict has expanded beyond military targets, with Iran striking power and water desalination facilities in Kuwait, damaging an oil facility, and engaging in aerial attacks with Bahrain and Jordan. The US responded to an Iranian strike in Jordan that killed two US service members by targeting locations in Qeshm Island and southern Iran. Tehran has since stated it will no longer adhere to an interim ceasefire and warned of further retaliation, while regional governments like Saudi Arabia, UAE, and Qatar have condemned the attacks on civilian infrastructure.
Analysts are warning of a looming supply danger, particularly for refined fuels, as global oil inventories have significantly decreased. According to the IEA, global observed oil inventories fell by 360 million barrels between March and May. The US Strategic Petroleum Reserve has fallen to its lowest level since 1983, and gasoline and diesel stocks in the US are also considerably below their five-year averages. If the Strait of Hormuz were to close again, alongside challenges like reduced Russian fuel exports due to refinery attacks, the market's shock absorbers might be too depleted to prevent a price spike.
The potential for continued military action to disrupt tanker operations through the Strait of Hormuz could push oil prices well above $100 per barrel, with some analysts forecasting Brent could average $82.85 per barrel for 2026, a nearly 30% revision from previous estimates. This conflict is also expected to add approximately 0.8% to global inflation. The initial closure of the Strait of Hormuz in March caused Brent crude prices to surge over 55% from pre-war levels of around $72 per barrel, hitting highs between $119 and $120 before subsiding.
