Oil Prices Rise to 6-Week High Amid US–Iran Escalation

Oil prices jumped to six-week highs on Wednesday as escalating hostilities between the United States and Iran and threats to two major Middle Eastern shipping routes deepened concerns about global crude supplies.

Brent crude futures rose by more than 4 percent to $95.10 a barrel at about 5:35 a.m. ET, while U.S. West Texas Intermediate crude climbed to $88.10, before giving back some of those gains in later trading. Both benchmarks reached their highest levels since June 11 and were on track for a fourth consecutive session of increases.

The rally came on the heels of the 11th consecutive night of U.S. strikes against Iran, and as President Donald Trump said that the prospect appeared dim for a near-term breakthrough in negotiations with Iran and threatened broader military action, including possible strikes on the suspected Pickaxe Mountain nuclear facility.

“They want to desperately meet, and until they’re ready to meet in a meaningful way, we have no interest,” Trump told reporters at the White House on July 21, vowing to continue putting pressure on Tehran to come to the table and make key concessions.

Trump also pledged to respond if the Iran-backed Houthi terrorist group in Yemen followed through on a threat to disrupt Saudi shipping through the Bab el-Mandeb Strait, a key waterway connecting the Red Sea to the Gulf of Aden.

“The energy market now has the dual-strait worry, with the Bab el-Mandeb Strait looking like it could join the Strait of Hormuz as a hot spot, as traders closely watch shipping numbers in the Red Sea,” said Tim Waterer, chief market analyst at KCM Trade.

Supply risks have also increased outside the Middle East after renewed attacks disrupted operations at the Caspian Pipeline Consortium terminal on Russia’s Black Sea coast, a major export route for crude from Kazakhstan.

“The longer the suspension drags on, the greater the likelihood that Kazakhstan will be forced to curb upstream production,” ING analysts said in a Wednesday note.

Around 1.7 million barrels per day were loaded at the CPC terminal in June, making any prolonged disruption significant for global supplies, according to the analysts.

They said the market may still be underestimating the combined effect of disruptions in the Persian Gulf, threats to Saudi exports through the Red Sea, and developments in the Black Sea.

“Factoring in the renewed disruptions from the Persian Gulf, risks to Saudi crude exports from the Red Sea, and developments in the Black Sea, one may argue that Brent at just over $91 per barrel is undervalued,” the analysts wrote.

“Particularly if these disruptions persist into August.”

US–Iran Strikes Intensify

The U.S. military said it carried out an 11th consecutive night of strikes against Iran late Tuesday and early Wednesday, targeting Tehran’s ability to threaten commercial shipping through the Strait of Hormuz.

The latest attacks followed Trump’s warning that the United States would strike Pickaxe Mountain “pretty soon, and very heavily.” U.S. officials have said Iran may have stored nuclear centrifuges at the heavily fortified site beneath a mountain.

Iran’s Khatam al-Anbiya central military command responded by warning that an attack on the facility would mark a major escalation.

“In that event, all U.S. assets, along with those of its allies and backers, will be subject to a decisive strike by the Islamic Republic of Iran’s Armed Forces,” Iran’s state-run media IRNA said in a statement citing the central command.

Senior Israeli officials told Epoch Magazine Israel that Tehran’s warning was also directed at Israel, which is preparing for the possibility that it may be drawn into the conflict if Trump expands U.S. strikes.

The officials said Israel was proceeding cautiously to avoid being accused of pushing Washington into a wider war, but was prepared to respond on a broad scale if attacked by Iran. They said plans for such a scenario had been in place for some time.

The United States has also stepped up military preparations in the region, including the deployment of dozens of aerial refueling aircraft to Israel, according to the officials.

They added that a Qatari proposal for a 10-day ceasefire remained on the table. The pause would be used to explore a possible resumption of negotiations, including an arrangement governing traffic through the Strait of Hormuz.

Standoff Over Hormuz

The Strait of Hormuz has become a central point of contention in the conflict. Roughly one-fifth of the world’s crude oil normally passes through the narrow waterway, but tanker traffic has fallen sharply since the ceasefire between Washington and Tehran collapsed earlier this month.

Iran has sought to assert control over the strait by directing vessels into a northern passage through Iranian coastal waters and requiring them to follow Iranian navigation rules. Tehran has also signaled that it intends eventually to impose tolls on ships passing through the waterway.

The United States has rejected those demands and urged commercial vessels to use an alternative southern passage along the coast of Oman. Some ships using that route have faced Iranian attacks, further escalating the military confrontation.

Secretary of State Marco Rubio said Wednesday that a central obstacle in the dispute was Iran’s demand for the right to control traffic in the strait, which he said Tehran does not possess under international law.

“If we create a precedent in the Middle East, where a nation state can decide that they are going to control an international waterway, charge a toll, and if you don’t pay them, blow up your ships, we have created a very dangerous precedent, which will repeat itself in other parts of the world, including in this region,” Rubio told reporters at the ASEAN Foreign Ministers’ meeting in the Philippines.

Regional tensions intensified further Wednesday after the Kuwaiti military said its air defenses were intercepting Iranian drones. Iran has also launched strikes against Bahrain and Jordan as the conflict has spread across the region.

Reuters contributed to this report.