Crude oil prices rose more than USD 1 a barrel on Monday after the United States launched strikes on Iran’s Larak Island near the Strait of Hormuz. Iran’s warning of retaliation added to concerns over a possible disruption to oil supplies through the key shipping route.
Brent crude futures climbed USD 1.08, or 1.23 per cent, to USD 89.18 a barrel as of 0040 GMT. US West Texas Intermediate (WTI) crude futures gained 92 cents, or 1.10 per cent, to USD 84.32 a barrel.
The latest escalation has brought supply concerns back into focus after crude prices had eased on hopes of diplomatic efforts and lower tensions around the Strait of Hormuz.
US strikes Iran’s Larak Island, oil supply risks rise
The US military carried out strikes on Iran’s Larak Island on Sunday, targeting two Iranian missile launchers, according to reports citing an American official.
Larak Island is located near the northern edge of the Strait of Hormuz, making it strategically important for global oil markets. The US Central Command said American forces had taken “limited, precise action” against Iranian Islamic Revolutionary Guard Corps forces involved in laying mines in the Strait.
The US military said the operation was aimed at protecting civilian mariners, commercial shipping and the movement of global trade through the waterway.
According to US officials, the strikes followed observations that Iranian forces were preparing to fire rockets and deploy sea mines in the Strait of Hormuz.
For oil markets, the key concern is whether the latest military action affects tanker movements through the waterway. Any disruption could tighten global crude supplies and push prices higher.
Iran threatens retaliation, markets turn cautious
Iran has warned of retaliation following the US strikes. The Islamic Revolutionary Guard Corps said there would be “vengeance upon criminals” and punishment for the aggressor.
Iranian state media also reported that Tehran launched ballistic missiles at two US air bases in Jordan in retaliation. Reports said Jordanian air defences intercepted the missile launches.
Market expert Ajay Bagga said the latest developments marked a fresh military escalation after a relatively calm period.
“After one month, there has been military action again in the Gulf,” Bagga said.
According to Bagga, eight ballistic missiles were fired towards US bases and ships in the region, with the missiles intercepted. He said the US reported no significant damage from the attacks.
The exchange of attacks has increased fears that the conflict could spread across the Middle East. For crude markets, any expansion of the conflict raises the possibility of risks to oil production, transportation and shipping infrastructure.
Strait of Hormuz remains key focus for crude
The Strait of Hormuz is one of the world’s most important oil shipping routes, connecting the Persian Gulf with the Gulf of Oman and the Arabian Sea.
Any threat to the safe movement of tankers through the strait can have a direct impact on crude prices. Traders generally build a higher risk premium into oil prices when there is a possibility of supply disruption.
Bagga said the latest escalation was already pushing oil prices higher. “Because of the escalation, we are seeing oil rise 2 per cent,” he said.
The renewed tensions have therefore reversed some of the optimism that had emerged in recent sessions. Crude prices had eased as markets focused on diplomatic efforts and the possibility of reduced tensions around the waterway.
The immediate question for traders is whether tanker traffic through the Strait of Hormuz continues normally. A prolonged disruption could put further upward pressure on Brent and WTI prices.
US sanctions add to pressure on Iran
The geopolitical risk for oil markets is also being accompanied by increased US economic pressure on Iran.
US Treasury Secretary Scott Bessent announced “Operation Economic Outcast” on August 24, targeting Iran’s global financial networks and revenue sources.
Bagga said the US has also imposed sanctions on Iranian-linked entities, including the UAE branch of Egypt’s Banque Misr, while another bank could face sanctions this week.
He added that the US had targeted several front companies, including entities in Hong Kong.
However, Bagga said the financial market impact of the sanctions has so far remained limited.
“Some sanctions have been imposed, but we have not seen any major impact of the Iranian sanctions in the markets,” he said.
The Group of 20 meeting is also beginning in the US this week. Bagga said Washington could use the meeting to speak with Chinese officials and ask China not to provide economic support to Iran.
For crude markets, the sanctions remain a secondary factor compared with the immediate risk around the Strait of Hormuz.
Crude outlook: Further escalation could push prices higher
The near-term direction of crude oil prices will depend largely on the next moves by the US and Iran. Any further military action, attacks on energy infrastructure or disruption to tanker traffic through the Strait of Hormuz could increase the supply risk premium and push crude prices higher.
On the other hand, a diplomatic breakthrough or steps to ensure safe passage for commercial vessels could reduce fears of supply disruption and bring prices back under pressure.
Bagga said the geopolitical developments were also affecting broader financial markets, with Asian equities under pressure and Indian markets indicating a gap-down opening.
He added that market pressure was not only coming from the US-Iran tensions. Comments by US Federal Reserve Chair Jerome Powell at the Jackson Hole symposium also appeared slightly hawkish to investors, adding to concerns over US monetary policy.
