Oil prices jumped more than $2 a barrel on Monday after fresh US strikes on Iran and Tehran’s subsequent retaliation heightened concerns over crude supplies through the Strait of Hormuz, as the Middle East conflict entered its sixth month.
Brent crude futures rose $2.11, or 2.40 per cent, to $90.20 a barrel, while US West Texas Intermediate (WTI) crude gained $1.89, or 2.27 per cent, to $85.30 a barrel.
Fresh Strikes Heighten Geopolitical Risk
US forces on Sunday struck two launchers on Iran’s Larak island in the Strait of Hormuz, marking the first known American strike on Iran since late July. Iran subsequently attacked two US air bases in Jordan, according to Iranian media citing the country’s Revolutionary Guards.
Efforts to bring the conflict to an end remain stalled, while mediators continue working to restore traffic through the Strait of Hormuz. Before the war began at the end of February, the strategic waterway carried about one-fifth of global oil flows.
Hormuz Traffic Remains Under Pressure
An increase in oil flows through the strait had helped ease some concerns over supply disruptions, but an agreement to fully reopen the route has remained elusive. Shipping data showed the number of visible commodity vessels passing through the strait over the weekend had fallen to five per day, underscoring continued concerns among shipping companies over attacks on vessels.
The risks were highlighted further after the United Kingdom Maritime Trade Operations said on Sunday that a tanker had been hit by a projectile while travelling inbound through the strait on Saturday.
Gulf Oil Exports Recover, But Remain Below Pre-War Levels
Goldman Sachs estimated last week that total Gulf oil exports had recovered to between 15 million and 16 million barrels per day. However, volumes remained 7 million to 8 million barrels per day below pre-war levels.
Exports were nevertheless 5 million to 6 million barrels per day higher than the lows recorded in March, indicating a partial recovery in regional crude flows despite continued security risks.
Duration Of Disruption Key To Oil Outlook
The duration of supply disruptions is expected to remain a key determinant of crude prices. JPMorgan estimates that every additional month of disruption could add around $7 to $8 a barrel to Brent prices.
The latest escalation has therefore renewed the geopolitical risk premium in crude markets just as improving flows through Hormuz had begun to ease fears of a prolonged supply squeeze. With shipping traffic still constrained and a full reopening of the strait yet to be secured, developments around the key oil transit route are likely to remain central to the near-term direction of crude prices.