Oil prices inched higher on Monday after US and Iran's tit-for-tat strikes over the weekend spooked investors about the fragility of their interim peace deal and slowed down shipping in the Strait of Hormuz.
Brent crude futures climbed over 0.8% to $72.58 a barrel while US West Texas Intermediate (WTI) crude futures gained nearly 1.3% to $70.11 per barrel, as seen at 7.18 am on Monday. This came after Brent crude fell nearly 11% last week to mark its third week of loss after crude shipments through the strait rose to their highest level since the US-Israeli conflict with Iran began earlier this year.
However, traffic has slowed again in the region following renewed attacks on ships in the Strait starting Thursday, marking the worst escalation since the US and Iran signed an interim peace deal.
Trump says 'Iran would no longer exist' if US resumes war
US President Donald Trump said on Saturday that Iran would "no longer exist" if the US were "forced" to resume the war. "United States aircraft just struck Iranian missile and drone storage locations, and coastal radar sites, for violating the Cease Fire Agreement, AGAIN!" Trump wrote on Truth Social.
Early on Sunday, US Central Command (CENTCOM) said it had attacked 10 Iranian military targets over "continued Iranian aggression against commercial shipping".
Iran carries out retaliatory strikes
Iran responded by saying that it had carried out retaliatory strikes against US bases in Kuwait and Bahrain.
"Any attempt to adopt new or separate arrangements compared to what is underway by the Islamic Republic of Iran, will only lead to more complicated situations and delays in the reopening of the Strait of Hormuz, and will increase the tensions," Iranian Foreign Minister Abbas Araghchi said. "I urge all parties... to adhere to the memorandum of understanding and not to allow this MoU to deviate from its course,” he further said.
Iran's Revolutionary Guards said that they were taking measures to control traffic in the critical waterway and that vessels in violation of those measures would be dealt with more firmly than before. Israel meanwhile launched strikes in Lebanon as Hezbollah's leader Naim Qassem rejected a deal to end that conflict.
Also read: Tehran attacks Bahrain, Kuwait following US strikes; threatens to end talks to end the war
All these developments further spook investors about shipping through the Strait of Hormuz, a narrow 33-kilometre waterway connecting the Persian Gulf with the Gulf of Oman that handles over 20% of the world’s daily oil and gas shipments. Its closure earlier this year had pushed oil prices as high as above $120 per barrel.
What lies ahead?
"Despite the U.S.-Iran deal marking an inflection point for oil markets, physical flows are constrained by tanker backlogs, damaged infrastructure and production shut-ins," Reuters quoted ANZ analysts. "It could take the remainder of the year before supply is near pre-conflict levels,” they further said.
"The market is likely to re-evaluate its assumption of a quick recovery of oil supply from the Persian Gulf," they further said.
Also read: Markets poised for a cautious start as GIFT Nifty trades flat
(With inputs from agencies)
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