Key Takeaways
- Brent crude futures reached their highest level since June 12, rising $2.89 to $86.19 per barrel.
- US military conducted a third consecutive night of strikes against Iran, heightening concerns over energy flows.
- Two UAE tankers were hit by Iranian cruise missiles in the Strait of Hormuz, with one crew member killed.
Oil prices surged to their highest levels in four weeks on Tuesday as tensions between the United States and Iran escalated in the strategically vital Strait of Hormuz. Brent crude futures rose $2.89, or 3.47%, to $86.19 per barrel at 4:58pm PKT, while US West Texas Intermediate (WTI) crude climbed $1.53, or 1.96%, to $79.67 a barrel.
The surge in prices came despite the signing of a memorandum of understanding between the United States and Iran on June 18, aimed at ending their conflict. However, ANZ analyst Soni Kumari stated that the deal did not last for even a few weeks, indicating ongoing concerns among market participants. 'What we think is that the peak of the escalation is behind us, but there are upside risks to oil prices if these disruptions continue and that will keep prices in the $85-$90 range,' she said.
The US military carried out a third consecutive night of strikes against Iran between Monday and Tuesday. This followed President Donald Trump's reinstatement of a naval blockade on Iranian shipping, along with a proposal to charge a 20% fee for guarding the Strait of Hormuz. These actions have injected fresh risk into the market, according to KCM Trade chief market analyst Tim Waterer. 'While a full closure hasn’t occurred, the competing objectives of both sides have made the supply picture highly uncertain,' he added.
Amid these tensions, two United Arab Emirates tankers were hit by Iranian cruise missiles in the southern lane of the Strait of Hormuz on Monday. The UAE Ministry of Defence reported that one Indian crew member was killed and eight others were wounded. Shipping data also showed a decline in the number of tankers transiting the Strait to its lowest level in two months, further highlighting the potential disruption to energy flows.
Citi noted that the possibility of Iran walking away from the memorandum of understanding until after the US mid-term elections has risen, which could lead to higher oil prices. However, despite these developments, Iran’s oil exports are continuing as usual, according to Oil Minister Mohsen Paknejad, who stated this on his official Telegram account.
Elsewhere in the region, Yemen's Houthi movement fired missiles at Saudi Arabia after the Yemeni government attacked an international airport in Sanaa. The Yemeni government claimed it was trying to prevent an Iranian plane from landing in Sanaa by convincing a Houthi delegation to board a Yemen flag carrier’s flight instead. If the Houthis extend their attacks to Saudi crude products in the Red Sea, it could further complicate oil flows from the region.
Analysts and market participants are closely monitoring these developments as they have significant implications for global energy markets. The ongoing tensions between the US and Iran, coupled with regional conflicts, continue to pose risks to the stability of oil supplies.
Despite signing the memorandum of understanding and having a deal, this did not last for even a few weeks. So that’s the concern the market is trying to price right now.
Soni Kumari, ANZ analyst
While a full closure hasn’t occurred, the competing objectives of both sides have made the supply picture highly uncertain.
Tim Waterer, KCM Trade chief market analyst
