Oil prices climbed more than 3% as a fresh round of fighting across the Middle East undermined diplomatic efforts to end a five-month-old conflict that has roiled energy markets and disrupted flows through two of the world's most critical oil-shipping routes.

The front-month Brent crude contract rose 3.8% to $87.32 a barrel in mid-morning European trading on Wednesday, while West Texas Intermediate futures were up 3.6% to $82.06 a barrel following a sharp selloff earlier this week.

The U.S. military on Tuesday intercepted Iranian ballistic missiles aimed at American forces in Jordan. Shortly after, the U.S. and Saudi Arabia launched strikes in Iraq against Iran-backed groups that the Islamic Revolutionary Guard Corps had previously directed to attack American troops and Saudi energy infrastructure.

"These developments throw cold water on the idea of a swift de-escalation in the Persian Gulf," analysts at ING said. "Clearly, with Saudi oil infrastructure increasingly targeted, the risk of more prolonged supply disruptions grows."

The conflict has spread well beyond the Persian Gulf. Iran-backed Houthi militants in Yemen have intensified attacks on vessels in the Red Sea in an effort to enforce a blockade of Saudi oil shipments, jeopardizing the Bab al-Mandeb Strait--the narrow waterway connecting the southern Red Sea to markets in Asia and elsewhere.

Meanwhile, shipping through the Strait of Hormuz--one of the world's busiest oil chokepoints--remains severely constrained. According to Kpler, average weekly crude flows fell to 2.57 million barrels a day in the week beginning July 20, down roughly 61% from 6.60 million barrels a day in the week beginning July 6. Verified transits have been largely limited to cargoes from the United Arab Emirates, Iraq and Qatar.

Iran on Tuesday rejected an Omani proposal to resume commercial shipping through the strait, instead pushing a plan that would give Tehran greater control over traffic through the vital waterway.

The disruption to crude flows is increasingly spilling over into refined fuel markets. Tight supplies of middle distillates have pushed the ICE gasoil crack spread--the premium refiners earn by turning crude oil into diesel and other middle-distillate fuels--above $70 a barrel, according to ING. Meanwhile, prices for immediate gasoil deliveries have climbed far above those for later deliveries, underscoring strong demand for prompt supplies.

Investors are now awaiting U.S. crude inventory data due later on Wednesday and a meeting of key members of the Organization of the Petroleum Exporting Countries and its allies, known as OPEC+, on Sunday. The group is expected to approve another production increase of around 188,000 barrels a day for September, matching the hikes agreed for June, July and August, according to some market watchers.

The September increase would complete the phased unwinding of 1.65 million barrels a day of voluntary supply cuts originally agreed in 2023, when the group still included the U.A.E., which left OPEC earlier this year.

Around 2 million barrels a day of separate OPEC+ production cuts introduced in 2022 will remain in place through the end of 2026. The alliance is also reviewing members' production capacity to establish 2027 output baselines, which will determine future quotas, though the conflict in the Middle East has likely complicated the assessment.

"While the OPEC+ production quota policy might seem irrelevant amid the war in the Middle East and the disrupted Hormuz oil flow, it has the potential to shape the oil market balance for 2027 if the U.S.-Iran war ends and a permanent peace agreement emerges," analysts at DNB Carnegie said.