Oil prices rise as US, Iranian strikes threaten Strait of Hormuz reopening

Oil prices rise as US, Iranian strikes threaten Strait of Hormuz reopening

Global oil prices climbed Monday following a weekend of tit-for-tat military strikes between the United States and Iran, renewing fears that the Strait of Hormuz will remain blocked and disrupting hopes for a stable ceasefire.

Brent crude, the primary international benchmark, rose about 0.9 percent on Monday. Brent futures for August delivery were at $73.21 a barrel as of 03:30 GMT, an increase of 127 cents compared to the day before the U.S. And Israel began their war on Iran on February 28.

The price volatility follows a period of instability where Brent touched $100 a barrel on a Tuesday morning before easing to around $99, following a previous dip to $96. Before the conflict began, oil was trading at approximately $70 a barrel. At one point, the benchmark rose almost 3% to nearly $103 a barrel.

The current flare-up began when US Central Command announced strikes against Iran on Friday and Saturday. Washington cited Iranian attacks on two commercial vessels in the Strait of Hormuz as the catalyst. In response, Iran launched missiles and drones targeting U.S. Military assets in Kuwait and Bahrain.

The Strait of Hormuz is a critical conduit for global energy, typically handling about one-fifth of global trade in oil and liquified natural gas (LNG). Other estimates place this at 20% for LNG and 25% of global seaborne oil shipments. The waterway has been effectively blocked since the war started in late February, though some vessels have recently resumed transits with U.S. Military coordination.

"Brent’s partial rebound this morning reflects a market that had perhaps run too quickly on ceasefire optimism,"

Fabien Yip, market analyst at IG, via Al Jazeera

The military exchanges have cast doubt on a memorandum of understanding signed on June 17 by US President Donald Trump and Iranian President Masoud Pezeshkian. While Trump stated on Friday that the ceasefire is still in place, Iran's state media claimed the U.S. Violated an April ceasefire by targeting ships and an oil tanker moving toward the strait.

U.S. Forces reported intercepting Iranian drones targeting commercial vessels. President Trump told reporters that three U.S. Destroyers were involved in the latest exchanges and that several Iranian small boats were completely destroyed. However, he described the Iranian strikes as just a love tap to ABC News.

The conflict has extended beyond crude oil to other energy products. Jet fuel prices have jumped by about half. IAG, the owner of British Airways, reported that its fuel costs are expected to hit €9bn this year, which is about €2bn higher than the previous year. IAG shares fell by more than 5% in early London trading.

Negotiations to end the war remain fraught. While Axios reported that officials planned talks in Doha, Qatar, on Tuesday, Iran has not yet commented on the reported agreement. Secretary of State Marco Rubio noted that negotiations could take a few days due to disputes over the specific language of documents.

Key stumbling blocks in the peace process include:

• Nuclear Capabilities: President Trump has demanded that Iran's enriched uranium be brought to the U.S. For destruction or destroyed in place. Tehran has repeatedly rejected these demands.
• Waterway Management: The U.S. And U.K. Insist the Strait of Hormuz must be open and unimpeded. Iran has proposed a toll system for ships and recently created an administrative account for the waterway.
• Assets and Regional Conflict: Iran is seeking the release of frozen overseas assets and a halt to Israeli strikes against Hezbollah in Lebanon.

The geopolitical tension also rippled through Asian stock markets on Monday. Japan's Nikkei 225 fell 0.7 percent and South Korea's Kospi dropped 1.9 percent. Tech companies tied to the AI boom saw significant losses, including SoftBank Group, which fell about 5 percent, and Samsung Electronics, which dropped about 5 percent. Conversely, Hong Kong's Hang Seng Index and Taiwan's Taiex rose by 2.2 percent and 1.4 percent, respectively.

Iran's Supreme Leader Mojtaba Khamenei warned that the U.S. Would no longer have safe havens for its bases in the Middle East. The IRGC added that it reserves the right to retaliate against any actions it deems a violation of the fragile ceasefire.