Persistent escalation in the Middle East conflict has driven a significant surge in international oil prices this week, with Brent crude gaining close to 12%, as ongoing supply disruption fears continue to push prices upward.
The United States announced last week the re-imposition of a maritime blockade on Iran and has conducted strikes on Iranian military targets for several consecutive days. In response, Iran has instructed Yemen's Houthi forces to prepare to block the Red Sea shipping lane. The simultaneous threats to the Strait of Hormuz and the Bab el-Mandeb Strait have intensified global energy supply concerns.
A fragile ceasefire agreement reached between the U.S. and Iran in June has since broken down. Reports indicate that on July 7th, a Qatari liquefied natural gas carrier and a Saudi oil tanker were attacked near the Strait of Hormuz. The Qatari vessel sustained severe damage and is at risk of explosion. As a result, traffic through the Strait of Hormuz has dropped sharply, with analysis from Rystad Energy suggesting tanker traffic has largely come to a standstill.
In early trading Friday, Brent crude futures were quoted at $85.28 per barrel, while West Texas Intermediate (WTI) crude futures stood at $79.98 per barrel, recouping losses from the previous session. Both benchmark contracts have gained approximately 12% for the week, with Brent poised for a third consecutive weekly advance.
Market views on the future direction of oil prices are divided. Goldman Sachs anticipates that Brent crude could rise above $110 in the fourth quarter if the disruption to Gulf exports persists. Other analysts warn that prices could return to above $100 per barrel if the conflict escalates to target major Gulf export infrastructure. However, Goldman Sachs also noted that oil prices could retreat to the $60 range if geopolitical tensions ease and production rebounds faster than expected.
Coinciding with the peak summer travel season, global crude inventories continue to decline, further tightening supply. Until the situation becomes clearer, oil prices are likely to remain highly volatile.