Key Takeaways
Oil prices extended gains for a fourth consecutive session Thursday after a new wave of U.S. strikes on Iranian military installations reignited fears of a full-scale conflict that could sever the Strait of Hormuz, a conduit for about a fifth of global oil shipments. Brent crude futures with September delivery rose 1.2% to trade near $80 a barrel, while West Texas Intermediate crude with August delivery added 1.1% to around $75, after both benchmarks settled Wednesday at their highest levels in a month.
"The market is pricing in a prolonged disruption scenario that we haven't seen since the initial outbreak of hostilities in February," said Helima Croft, head of global commodity strategy at RBC Capital Markets. "Each new round of strikes reduces the probability of a quick diplomatic resolution and increases the risk premium embedded in every barrel transiting the region."
U.S. Central Command said Wednesday it had completed a 90-minute wave of precision strikes against coastal defense systems and cruise missile storage and launch sites on Iran's Greater Tunb Island, the fourth consecutive day of American bombardment. The strikes came after Washington reimposed a naval blockade of Iranian ports, with Centcom reporting it had already redirected two commercial vessels attempting to run the cordon within 17 hours. Iran's Islamic Revolutionary Guard Corps responded by striking U.S. military facilities in Bahrain, Kuwait and Jordan, and threatened to shut off additional regional energy export corridors, including the Bab el-Mandeb strait via its Houthi allies in Yemen.
The escalation effectively dismantles the interim ceasefire deal signed last month, which had been intended to lead to broader negotiations on Iran's nuclear program and a permanent truce. Iran's deputy foreign minister said the agreement was now all but "dismantled," while President Donald Trump threatened to target Iranian power plants and bridges unless Tehran resumes talks. The probability of the International Atomic Energy Agency visiting Iranian nuclear sites by year-end has dropped to 22.5%, down from 44% a week ago, according to prediction market data.
The stakes for global energy markets are acute. Before the war, the Strait of Hormuz carried roughly 20% of the world's oil and gas shipments. Iran has asserted it will keep the waterway closed until what it describes as "the end of America's evils," while the IRGC has signaled it may use its Houthi allies to shut the Bab el-Mandeb, potentially blocking two of the world's most vital energy arteries simultaneously. Analysts at Goldman Sachs have warned that a sustained closure of both chokepoints could push Brent above $100 a barrel, stoking inflation expectations and complicating central bank policy decisions across developed economies. The last time oil prices sustained a move above $90, in early 2022 following Russia's invasion of Ukraine, the S&P 500 fell more than 8% over the subsequent two months as the Federal Reserve accelerated its tightening cycle.
This article is for informational purposes only and does not constitute investment advice.
