Oil prices are surging as renewed military actions between the U.S. and Iran intensify across the Middle East. Brent crude climbed to nearly $88 per barrel, marking its largest weekly gain since April, while earlier in the week, it had already risen over 10% to around $85 per barrel. This escalation has heightened worries about the security of the Strait of Hormuz, a critical oil transit chokepoint, with Iran's Islamic Revolutionary Guard Corps Navy reportedly stopping vessels and warning against unauthorized passage of energy exports. Giovanni Staunovo, a commodity analyst at UBS, noted that the oil market is tightening, which will likely keep prices supported, particularly given repeated strikes on vessels and energy infrastructure.
The broader conflict is expanding beyond military targets, with Iran reportedly striking power and water desalination facilities in Kuwait for a third consecutive day, and Kuwaiti authorities reporting damage at an oil facility. Bahrain intercepted Iranian aerial attacks, and Jordan reported intercepting missiles near Aqaba. U.S. Central Command indicated that its strikes aimed to curb Iran's ability to threaten commercial shipping. Regional governments, including Saudi Arabia, the United Arab Emirates, and Qatar, have expressed concern over attacks on civilian infrastructure, with Saudi Arabia issuing precautionary warnings around key energy hubs.
Energy market vulnerabilities are heightened by shrinking global oil inventories. Between March and May, observed oil inventories fell by $360 million barrels, or $3.9 million barrels per day, according to the International Energy Agency (IEA). Although they rebounded by $21 million barrels in June, the U.S. Strategic Petroleum Reserve is at its lowest level since 1983. Experts like Fatih Birol, executive director of the IEA, warn that tools to fill supply gaps are not endless, especially if the Strait of Hormuz is closed. Refined product markets are even tighter than crude, with low inventories of gasoline, diesel, and jet fuel in Europe, and U.S. nationwide crude inventories at their lowest since 1984. This situation risks a significant price spike if disruptions are protracted, potentially pushing crude towards $100 per barrel and impacting inflation, interest rates, and global economic stability.
