Oil Prices Surge to 4-Week High Amid US-Iran Blockade & Strait of Hormuz Tensions

Brent crude futures rose 3.47% to $86.19 per barrel, while U.S.

The price surge follows a breakdown in a June 18 memorandum of understanding (MoU) intended to end the conflict between Washington and Tehran. Brent crude hit its highest level since June 12, and WTI reached its highest point since June 16, which was the period immediately preceding the short-lived agreement.

The market is currently reacting to a series of escalations between July 13 and July 14, including three consecutive nights of U.S. military strikes against Iran. President Donald Trump reinstated the blockade of Iranian shipping and proposed a 20% fee for guarding the Strait of Hormuz, a critical chokepoint for global energy flows.

Strait of Hormuz Disruptions and Tanker Attacks

Physical disruptions to shipping have materialized alongside the price increases. The UAE Ministry of Defence reported on July 13 that two Iranian cruise missiles hit two United Arab Emirates tankers in Omani territorial waters within the southern lane of the Strait of Hormuz. The ministry stated that one Indian crew member died and eight others were wounded in the strikes.

Shipping data from July 13 indicates that the volume of tankers transiting the Strait of Hormuz fell to the lowest level seen in two months. This decline in traffic reflects the heightened risk environment for commercial vessels in the region.

Tim Waterer, chief market analyst at KCM Trade, stated that the reinstatement of the blockade and Iranian responses have injected fresh risk into the market. Waterer noted that while a full closure of the strait has not occurred, the competing objectives of both nations have made the supply picture highly uncertain.

Market Outlook and Price Forecasts

Analysts suggest that while the immediate peak of escalation may have passed, the risk of sustained higher prices remains. Soni Kumari, an analyst at ANZ, observed that the June 18 deal did not last even a few weeks, and the market is now attempting to price in that instability.

Kumari expects oil prices to remain in the $85 to $90 range if current disruptions continue. Meanwhile, Citi indicated in a note that the Iranian regime may walk away from the MoU until after the U.S. mid-term elections, a scenario that would likely result in higher-for-longer oil prices.

Despite the geopolitical tension and the cancellation of a 60-day U.S. oil sanctions waiver last week, Iranian oil exports are continuing as usual, according to oil minister Mohsen Paknejad via his official Telegram account.

Regional Instability in Yemen and Saudi Arabia

Additional volatility is emerging from Yemen. On July 13, the Yemeni government attacked an international airport in the capital, Sanaa, to prevent an Iranian plane from landing. This action was taken after the government failed to convince a Houthi delegation, which had traveled to Tehran for the funeral of the assassinated Iranian supreme leader Ayatollah Khamenei, to use a Yemen flag carrier instead.

In response, the Houthi movement fired missiles at Saudi Arabia. Simon Wong, a portfolio manager at Gabelli Funds, warned in a note that further uncertainties regarding crude flows from the region could arise if the Houthis extend their attacks to Saudi crude products in the Red Sea.