Oil prices climbed on Friday, heading for weekly gains as escalating hostilities between the United States and Iran raised fresh concerns about supply disruptions from the Middle East, particularly through the strategic Strait of Hormuz. Brent crude futures increased by 19 cents, or 0.25%, to settle at $76.49 per barrel, while US West Texas Intermediate (WTI) crude rose 19 cents, or 0.26%, to $72.27. For the week, Brent was on track for a gain of approximately 6%, and WTI was poised for a 5% increase.
Market Sentiment and Risk Premium
Despite the upward movement, prices have retreated from mid-week highs, reflecting a cautious market. Vandana Hari, founder of oil market analysis provider Vanda Insights, noted, "Prices have backed off the mid-week highs, but there is still a substantial risk premium as Hormuz transits are back to a near-standstill with no clear signs on when normal reopening might resume." She added that market confidence in the US and Iran returning to diplomacy is capping further upside.
Renewed Military Actions
The latest surge in tensions followed Iranian armed forces launching attacks on US military infrastructure in Gulf states on Thursday, in retaliation for US strikes on Iran's southern coastal and eastern provinces. This escalation further strained a three-week-old ceasefire. Additionally, Iranian media reported multiple explosions across southern Iran, including in Bushehr, where one of the country's nuclear plants is located. The renewed fighting came a day after Iran buried its slain supreme leader, Ayatollah Ali Khamenei, who was killed on February 28, the first day of the war.
Impact on Strait of Hormuz
The conflict has delayed the full reopening of the Strait of Hormuz, a vital waterway that carried about 20% of daily global oil and gas supplies before the war. Ship-tracking data on Thursday showed tanker traffic through the strait at a near standstill, as vessel owners assessed risks from the latest strikes. The hostilities began after Iran hit a Qatari LNG ship exiting the waterway near Oman.
US Stance and Market Reassurance
Despite the escalation, US President Donald Trump stated on Wednesday that he did not expect the war to restart due to the new fighting, adding that "anything that happens is going to be over very quickly." Daniel Hynes, senior commodity strategist for ANZ Bank, commented, "Despite the US ramping up attacks on military sites in Iran, the market drew some reassurance from the Trump administration’s decision to avoid targeting Iranian energy infrastructure." Hynes further noted that Trump's comments about not expecting a full-scale conflict provided additional support to market sentiment.
