Oil prices climbed more than 1% on Thursday following fresh US military strikes on Iran, undermining expectations for a negotiated end to the conflict and the full reopening of the Strait of Hormuz, a critical chokepoint that handled one-fifth of pre-war global oil supplies.
Brent and WTI Futures Rise
Brent crude futures increased by 86 cents, or 1.1%, to settle at $78.88 per barrel. US West Texas Intermediate (WTI) crude futures rose 85 cents, or 1.2%, to $74.37 per barrel. Both benchmarks had already gained more than a dollar in post-settlement trade on Wednesday after the US military initiated new strikes against Iranian targets.
Before the latest escalation, the benchmarks had closed at their highest levels in over two weeks, following US President Donald Trump's threats of additional attacks on Iran.
Escalation Undermines Ceasefire Hopes
"Fresh US strikes on Iran pushed oil higher this morning, with the latest escalation undermining confidence in the fragile ceasefire," said ING analysts in a client note. The US military confirmed it had completed strikes aimed at keeping the Strait of Hormuz open to maritime traffic, hours after President Trump declared that an interim agreement to end the war was "over."
US Central Command reported that forces struck approximately 90 Iranian military targets, including air defense systems, coastal surveillance assets, missile and drone storage sites, naval capabilities, and military logistics infrastructure along Iran's coastline.
Iran Retaliates, Strait Risks Rise
Iran responded on Wednesday by attacking US military sites in Bahrain and Kuwait, retaliating for earlier US strikes on its infrastructure. Before the Iran war began on February 28 with US and Israeli airstrikes, one-fifth of global oil and liquefied natural gas supplies transited the Strait of Hormuz. Tehran's control of the waterway has served as its primary leverage in the conflict.
The recent surge of oil shipments through the strait is now effectively over, as shipowners are expected to adopt a more cautious approach, according to IG analyst Tony Sycamore in a note.
Geopolitical Risks to Persist
Despite an interim peace deal between Washington and Tehran, "significant geopolitical risks remain," said Suvro Sarkar, head of energy research at DBS Bank. He expects conflict uncertainty to support prices in the near term.
"We believe Iran has every incentive to prolong these discussions, suggesting that the war risk premium in oil prices may not fully dissipate for several months, leading to continued volatility despite an overall downward price trajectory in the medium term," Sarkar added.
