A weekend exchange of missile and drone strikes between the U.S. and Iran has pushed crude above $92 a barrel and dimmed prospects for reopening the Strait of Hormuz.
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U.S.-Iran clashes push oil above $92 as Hormuz reopening stalls
A weekend exchange of missile and drone strikes between the U.S. and Iran has pushed crude above $92 a barrel and dimmed prospects for reopening the Strait of Hormuz.
A weekend exchange of missile and drone strikes between the U.S. and Iran wounded five American servicemembers and pushed crude above $92 a barrel, complicating negotiations to reopen the Strait of Hormuz.
"The greatest danger may not be a deliberate decision to go to war, but a gradual escalation driven by recurring incidents in an increasingly volatile environment," said Danny Citrinowicz, formerly head of Israeli Defense Intelligence's Iran desk.
Front-month WTI crude rose 0.2% to $92.31 a barrel in early Asian trade Tuesday, while Brent crude swung from a $97.44 spike to $93.08 as traders weighed the risk of a prolonged closure of the waterway that handles about one-fifth of global oil and LNG supplies. The U.S. struck Iranian radar and command positions on Qeshm and Goruk islands Saturday and Sunday after Iran shot down an MQ-1 surveillance drone, CENTCOM said. Iran retaliated Monday with a ballistic missile targeting Ali Al Salem Air Base in Kuwait, which was intercepted; falling debris from a previous strike had already damaged two MQ-9 Reaper drones and injured five U.S. personnel.
The tit-for-tat exchanges threaten to unravel a fragile U.S.-Iran ceasefire in place since April 8, just as President Trump pushes for a permanent deal that would reopen the Strait of Hormuz and ease gasoline prices ahead of November's congressional elections. U.S. forces have coordinated about 70 vessels — roughly three ships per day — through Omani waters at the southern end of the strait, a pace far below normal traffic levels.
The latest escalation follows a pattern of calibrated strikes that both sides have used to jockey for leverage in indirect negotiations. Iran's Revolutionary Guards said Monday's attack on the Kuwaiti air base was retaliation for U.S. strikes on southern Iran, while Washington described its actions as self-defense strikes against threats to commercial shipping.
The intertwining of conflicts across the region has complicated the diplomatic calculus. Iran temporarily signaled a suspension of indirect talks with the U.S. after Israeli operations in Beirut's southern suburbs, with Foreign Minister Abbas Araghchi stating that the U.S.-Iran truce was "unequivocally a ceasefire on all fronts, including in Lebanon." Tehran's Tasnim news agency warned that Iran and its proxies could "activate other fronts, including the Bab al-Mandab Strait" at the entrance to the Red Sea, another critical maritime chokepoint.
Israel-Hezbollah Fighting Adds Another Layer
President Trump said Monday he had secured agreements from both Israel and Hezbollah to halt fighting in Lebanon, calling off an Israeli advance toward Beirut. But Israeli Prime Minister Benjamin Netanyahu's office later denied a formal ceasefire was in effect, and Israeli strikes continued in southern Lebanon, killing six people overnight. The disconnect between Washington's diplomatic messaging and battlefield realities has left oil traders parsing every headline for signs of a breakthrough or breakdown.
"The absence of a clear breakthrough in U.S.-Iran negotiations and renewed incidents reinforce worries that restrictions affecting the Strait of Hormuz could stay intact for longer than expected," said Joseph Dahrieh, managing director at Tickmill.
The war, which began March 2 after Hezbollah launched retaliatory rockets into Israel following an Israeli strike that killed Iran's supreme leader, has already killed thousands and pushed global energy prices sharply higher. Brent crude has traded in a $15 range over the past week as conflicting signals on diplomatic progress whipsawed prices. The last time the Strait of Hormuz faced a sustained disruption — during the Iran-Iraq war in the 1980s — oil prices doubled over 12 months.
Both sides have incentives to avoid all-out war while maintaining pressure. "Neither Washington nor Tehran is likely to completely abandon the progress made and return to an unmitigated bombing campaign," said Mohit Kumar, chief European economist at Jefferies. But with each exchange, the risk of miscalculation grows.
This article is for informational purposes only and does not constitute investment advice.
[1] Oil Prices Rise Amid Continuing Middle East Tensions[2] U.S. and Iran Trade Fire as Strait of Hormuz Tensions Continue - The Maritime Executive[3] US says it struck Iranian military sites, Tehran responds with air base attack - Yahoo[4] Oil Edges Higher; Trump Seeks to Quell Israel-Hezbollah Conflict - WSJ[5] Clashes continue in Lebanon after Israel and Hezbollah accept partial US truce
