Oil prices experienced a significant rebound on Tuesday, climbing more than 2% and recovering a portion of the losses incurred in the prior session. This uptick in oil prices was driven by escalating supply concerns following the effective shutdown of the Strait of Hormuz and the refusal of several U.S. allies to provide naval escorts for tankers traversing the waterway.
As a result, Brent crude futures surged by USD 2.74 (2.7%), reaching USD 102.95 per barrel while U.S. West Texas Intermediate (WTI) crude increased by USD 2.45 (2.6%), to settle at USD 95.95 per barrel. These gains partially offset the previous day’s declines, during which Brent fell 2.8% and WTI plunged 5.3% amid reports that some vessels had managed to navigate the strait.
The Strait of Hormuz, through which approximately 20% of the world’s oil and liquefied natural gas supply passes, has been largely disrupted by the ongoing U.S.-Israeli conflict with Iran, now entering its third week. The disruption has intensified fears of supply shortages, rising energy costs, and heightened inflationary pressures.
Analysts have underscored the fragility of the situation, noting that even a single provocative act, such as a missile strike or the planting of a mine on a tanker by Iranian militia, could rapidly escalate tensions. According to analysts, the risks remain acute despite the current relative calm.
Another factor compounding the supply concerns is the diplomatic friction between the United States and its traditional allies. Former President Donald Trump’s appeal for allied nations to contribute warships for escort operations through the Strait of Hormuz was rebuffed by several key partners, prompting criticism from the U.S. administration, which characterized the response as ungrateful given decades of American support.
This geopolitical conflict has further unsettled oil markets, which remain focused on the duration of the conflict, the continued halt of shipments through the strait, and the potential long-term damage to oil infrastructure in the Gulf region.
Strait Closure Cuts Oil Output by Half
Additional upward pressure on prices also emerged following reports of a drone attack that ignited a fire in the Fujairah Oil Industry Zone in the United Arab Emirates during Asian trading hours. Although no casualties were reported, the incident added to the prevailing sense of instability. Meanwhile, Middle Eastern crude benchmarks have surged to unprecedented levels, becoming the most expensive in the world, as traders attribute the spike to reduced available supply for delivery.
The effective closure of the strait has forced the United Arab Emirates, the third-largest producer within the Organization of the Petroleum Exporting Countries (OPEC), to curtail more than half of its production, according to sources familiar with the matter.
In parallel diplomatic efforts, Iran has engaged in discussions with India regarding the release of three tankers seized in February, as part of broader negotiations aimed at ensuring the safe passage of Indian-flagged or India-bound vessels through the Strait of Hormuz. Meanwhile, on the multilateral front, the head of the International Energy Agency (IEA) signaled the possibility of releasing additional oil from member countries’ strategic reserves, supplementing the 400 million barrels already committed, in an effort to mitigate rising energy costs.
As Israel announced detailed plans for at least three more weeks of military operations, following overnight strikes across Iranian sites, the outlook for oil markets remains highly contingent on the evolving geopolitical landscape and the resilience of global energy infrastructure.
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