Oil prices climbed about 2% on Tuesday, extending the previous session's sharp rally to hit their highest level in four weeks as tensions between the United States and Iran intensified, raising fresh concerns over global energy supplies.
Crude oil price on July 14
Brent crude futures gained $1.68, or 2%, to $84.98 a barrel, while U.S. West Texas Intermediate (WTI) crude rose $1.65, or 2.1%, to $79.79 a barrel. On Monday, Brent had surged 9.6% after tensions continued to escalate. Crude prices are now at their highest levels since the United States and Iran signed a memorandum of understanding to end the war on June 17.
The latest gains came after the United States reinstated its naval blockade of Iran and both countries stepped up military action around the Strait of Hormuz, adding to worries over the security of one of the world's most critical oil shipping routes.
On Monday, two United Arab Emirates tankers were struck by Iranian cruise missiles in the southern lane of the Strait of Hormuz in Omani territorial waters, according to the UAE Ministry of Defence. The attack killed one Indian crew member and injured eight others.
Also read: A dangerous new phase of war? Iran's military is being hit 'very hard', says Donald Trump
At the same time, U.S. President Donald Trump said the United States had reinstated its blockade of Iranian shipping and added that Washington should be reimbursed by countries benefiting from its efforts to secure shipping through the Strait of Hormuz.
Military action also continued on the ground. U.S. Central Command said it carried out a third straight night of strikes against Iran, while Iran's semi-official YJC news agency reported seven explosions in the port city of Bandar Abbas and two more on Kish Island early on Tuesday.
Elsewhere in the region, Yemen's Houthi movement launched missiles at Saudi Arabia after accusing the kingdom of bombing an airport under its control on Monday.
What’s next?
Anindya Banerjee, Head of Commodity and Currency Research at Kotak Securities, said markets are reacting less to the strikes themselves and more to the setback in diplomatic efforts. Tehran has now laid down preconditions for resuming negotiations, and every new exchange delays the return of normal tanker traffic through the Strait of Hormuz, which was already operating well below pre-war levels before the latest escalation.
He said this has led to a rebuilding of the geopolitical risk premium, with Brent crude now testing the upper end of Kotak Securities' $70 to $80 base-case range. If hostilities continue and shipping conditions worsen further, prices could climb to $85-90 per barrel.
Read more: Oil's war premium makes a comeback with missiles
However, Banerjee added that the base-case scenario remains a contained conflict rather than a complete shutdown of the waterway, as Washington wants lower oil prices ahead of the midterm elections, Tehran continues to seek sanctions relief, and mediation efforts by Qatar remain active. Even so, he said the outlook for crude remains tilted to the upside as long as uncertainty over oil shipments persists.
Nuvama Institutional Equities warned that a prolonged closure of the Strait of Hormuz could disrupt nearly 20 million barrels per day of crude flows. In such a scenario, oil prices could potentially jump to between $110 and $150 per barrel.
Last month, Saudi Aramco Chief Executive Officer Amin Nasser cautioned that any prolonged disruption in the Strait of Hormuz could delay the return of stability to global oil markets until 2027. He said an extended disruption could affect nearly 100 million barrels of oil supply every week.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
