Oil prices surged on Wednesday, climbing more than 4% as traders factored in the potential for supply disruptions amid escalating tensions between the U.S. And Iran. Fears of a broader conflict contributed to the increase, alongside a lack of progress in peace talks between Ukraine and Russia.
U.S. Heating oil futures also jumped, rising approximately 5%. Brent crude, the international benchmark, settled at $70.35 per barrel, up $2.93, or 4.35%. West Texas Intermediate (WTI) crude, the U.S. Benchmark, rose $2.86, or 4.59%, to $65.19 per barrel. Both contracts reached their highest levels since January 30th, rebounding from a two-week low reached the previous day.
According to Phil Flynn, senior analyst at Price Futures Group, both contracts rose sharply late in the session, gaining more than $3 near the close, fueled by reports indicating Israel had raised its alert level due to growing indications of a potential joint U.S.-Israeli attack on Iran.
Andrew Lipow, president of Lipow Oil Associates, stated that the significant moves in oil prices were “entirely driven by geopolitical factors,” remaining influenced by news surrounding discussions between the U.S. And Iran, as well as Russia and Ukraine. He added, “The oil market is pricing in additional risk of supply disruption.”
Oil prices had declined on Tuesday following comments from the Iranian Foreign Minister suggesting that Tehran and Washington had reached an understanding regarding guiding principles for nuclear talks. However, the Iranian semi-official Fars News Agency reported on Wednesday that Iran and Russia would conduct naval maneuvers in the Gulf of Oman and the northern Indian Ocean on Thursday.
As talks began on Tuesday, Iranian state media reported that Iran had temporarily closed parts of the Strait of Hormuz, a vital passageway for global oil supplies, as a precautionary security measure while the Revolutionary Guard conducted military exercises there. Later, state media reported the Strait had been closed for several hours, without clarifying if it had fully reopened.
Eurasia Group, in a memo to clients on Tuesday, indicated it believes there is a 65% probability of the U.S. Launching military strikes against Iran by the end of April.
Adding to the global uncertainty, peace talks between Ukraine and Russia, lasting two days in Geneva, concluded on Wednesday without any tangible progress. Ukrainian President Volodymyr Zelenskyy accused Moscow of obstructing U.S.-mediated efforts to end the four-year-long conflict.
U.S. President Donald Trump has repeatedly pressured Ukraine to agree to a deal that could involve painful concessions, amid Russian forces shelling Ukraine’s power grid and making gains on the battlefield.
Zelenskyy described the talks as “difficult.”
The price increases reflect a heightened sense of risk in the oil market, driven by the confluence of geopolitical tensions in both the Middle East and Eastern Europe. The Strait of Hormuz, through which roughly 20% of the world’s oil supply passes, is particularly vulnerable to disruption. Any closure, even temporary, could significantly impact global energy markets.
The potential for a U.S.-Iran conflict adds another layer of complexity. While the specifics of any military action remain uncertain, the possibility of strikes against Iranian oil infrastructure or other strategic assets is driving up prices. The market is pricing in a risk premium, anticipating potential supply losses.
The stalled peace talks between Ukraine and Russia also contribute to the uncertainty. While the direct impact on oil supply from that conflict is less immediate than a disruption in the Middle East, the ongoing instability in the region continues to weigh on market sentiment.
The situation is further complicated by existing international sanctions against Iran. These sanctions, imposed by the United States and other countries, have already limited Iran’s oil exports. Any escalation of tensions could lead to further restrictions, tightening global supply.
The collapse of U.S.-Iran talks, as reported by Axios and subsequently reflected in the price of oil, suggests a breakdown in diplomatic efforts to resolve the dispute over Iran’s nuclear program. This breakdown increases the likelihood of a more confrontational approach, potentially involving military action.
The market’s reaction underscores the sensitivity of oil prices to geopolitical events. Even the perception of increased risk can trigger significant price swings. Traders are closely monitoring developments in both the Middle East and Eastern Europe, assessing the potential impact on global oil supply and demand.
Looking ahead, the trajectory of oil prices will likely depend on the evolution of these geopolitical tensions. A de-escalation of conflict and a resumption of diplomatic talks could ease concerns and put downward pressure on prices. However, any further escalation could lead to even higher prices.
