Oil jumps over 4% as Iran declares Hormuz closed
What's the story
Oil prices have witnessed a sharp spike, rising over 4% on Monday. The surge comes as Iran has expanded its military operations to Gulf states in response to recent US attacks. This has raised concerns over the safety of energy shipments through the vital Strait of Hormuz. Brent crude futures rose by $3.34 or 4.38% to $79.5 per barrel, while US West Texas Intermediate (WTI) crude gained $3.07 or 4.3% to $74.2 per barrel, respectively, on Monday morning.
Military escalation
Trump challenges Iran's announcement of Hormuz closure
Over the weekend, Tehran expanded its military operations to Qatar and the United Arab Emirates. In retaliation, the US launched another round of attacks on Iran, saying the new strikes were aimed at holding Tehran accountable for its attacks on commercial vessels passing through the Strait of Hormuz. President Trump stated Sunday that Hormuz is open for commerce, challenging an earlier announcement from Iran that closed the waterway after a vessel on an "unapproved route" was struck.
Market reaction
Crude prices rebound after US-Iran agreement setback
The latest spike in crude prices comes after a previous decline due to the US-Iran agreement signed on the sidelines of last month's G7 summit in France. The deal was meant to end hostilities and ensure safe passage for commercial vessels through the Strait of Hormuz. However, this recent escalation threatens those efforts and could delay global oil inventory recovery later this year.
Diplomatic implications
Escalation threatens to reverse global oil inventory recovery
The latest escalation also casts doubt on the future of the interim agreement signed by the US and Iran last month, which aimed to reopen the strait and end hostilities after another 60 days of negotiations. Despite a June increase in global oil supply by 4.1 million barrels per day following this deal, production was still 9.4 million barrels per day below pre-war levels, according to an International Energy Agency report released Friday.
Price predictions
Analysts warn of potential price surge
Analysts remain cautious about the market's future. Nuvama Institutional Equities warned that a prolonged closure of the Strait of Hormuz could disrupt nearly 20 million barrels per day of crude flows, possibly pushing oil prices up to between $110 and $150 per barrel. "The latest developments have effectively thrown the future of the 60-day negotiation process into doubt," Bjarne Schieldrop, chief commodities analyst at SEB, told Reuters.