Oil prices regain upward momentum as market fears of escalation in Middle East conflicts increase

Ask AI · Did Trump’s delay in striking Iran aim to stabilize oil price fluctuations?

Source: Global Market Reports

Affected by concerns over the potential escalation of conflicts in the Middle East, crude oil rose in volatile trading, recovering from Monday’s significant decline; the critical Strait of Hormuz, through which crude oil flows to global markets, remains blocked.

Brent crude oil rose above $102 per barrel. Previously, Brent crude had plunged by 11% on Monday after U.S. President Trump delayed threats to strike Iran’s energy infrastructure by five days and claimed that negotiations were underway with Tehran. Iran denied that negotiations were happening, while Israel continued its attacks. The U.S. crude benchmark West Texas Intermediate (WTI) rose about 3%.

This month, Brent crude has cumulatively risen about 40%, as the market fears that hostile actions between the U.S., Israel, and Iran shaking the Middle East could lead to a global energy crisis, subsequently pushing up inflation. The conflict has blocked passage through the Strait of Hormuz, forcing Gulf oil-producing countries to cut production by millions of barrels daily. Diesel, aviation fuel, and other refined products have seen price increases exceeding those of crude oil, squeezing consumers and putting governments in a difficult position.

The crisis’s impact continues to spread: Chile plans to raise fuel prices by up to 50%; in Asia, Japan has ordered a comprehensive review of the supply chain for oil-related products; Thailand has raised diesel prices; and the Philippines has warned that a shortage of aviation fuel could lead to flight cancellations “very likely.”

Daan Struyven, co-head of global commodities research at Goldman Sachs Group, stated: “If this shock lasts longer, the current extreme supply tightness concentrated in the Middle East and Asia will spread.” He noted that ultimately, demand shrinkage would be necessary to achieve supply-demand rebalancing.

Due to Iran’s bombing of its territory, U.S. allies like Saudi Arabia and the UAE have taken a tougher stance against Iran. Sources revealed that Saudi Arabia has informed the U.S. that it is prepared to strike Iran if its power and water plants are attacked.

U.S. allies in the Gulf are gradually leaning towards participating in military operations against Iran. Reports citing insider information suggest that Saudi Crown Prince Mohammed bin Salman is eager to restore deterrence and is about to make a decision to join the offensive.

XS.com market analyst Lin Tran stated: “If Gulf countries join the conflict, it would mean a significant escalation. The market remains highly sensitive to the latest news.”

The semi-official Iranian Fars News Agency reported that Ali Nikzad, the Deputy Speaker of the Iranian Parliament, stated that the Strait of Hormuz would not return to its previous state and that Iran would not negotiate with Washington.

CBS News quoted a senior Iranian Foreign Ministry official as saying that Tehran is reviewing the letter received from the U.S. through a mediator. Meanwhile, Fars News Agency reported that gas facilities in Isfahan, central Iran, were attacked.

In a report mentioning the Iranian Islamic Revolutionary Guard Corps, analysts including Helima Croft from the Royal Bank of Canada Capital Markets stated: “It is currently unclear how far secret negotiations have progressed, nor is it clear whether the IRGC is willing to reach a settlement at this stage, with a firm grip on the Strait of Hormuz. For the physical market, the determining factor may ultimately be the passage of vessels, rather than verbal statements.”

Although most shipping in this critical waterway remains stagnant, a small number of vessels have successfully departed the Persian Gulf in recent days.

Over the weekend, Trump threatened that unless Iran fully opened the Strait of Hormuz within 48 hours, he would bomb its energy infrastructure. Informed diplomatic negotiators believe his decision to pause strikes aims to manage oil prices, a connection Trump acknowledged on Monday. He stated, “Once an agreement is reached, oil prices will drop like a rock.”

Trump also suggested that the U.S. and Iran could jointly manage the Strait of Hormuz. He stated that this narrow waterway connecting the Persian Gulf to global markets could be reopened “quickly” if feasible.

Trump’s repeatedly changing statements have left investors weary, as traders must sift through a continuous stream of sometimes contradictory information, leading to a decline in market transaction volumes. Four of the six largest fluctuations in Brent crude futures history occurred after the outbreak of this conflict.

Will Todman, a senior researcher at the Center for Strategic and International Studies’ Middle East Program, stated: “For President Trump, reaching a solution through negotiation may be the best option among a series of bad choices.” However, he believes that Iran “will participate in negotiations with a great deal of skepticism, fearing that Trump is merely stalling for time while waiting for more military forces to be deployed.”