Oil prices have surged sharply as markets grow increasingly concerned that the United States and Iran could return to a state of full-scale war, threatening passage through the Strait of Hormuz.

The global benchmark Brent crude rose approximately 4.6%, settling around $88 per barrel, marking its largest weekly gain since April. A report from Axios stating the US is dispatching dozens of refueling tankers to Israel reinforced market expectations of a potential near-term escalation in the conflict, driving oil prices higher on Friday.

This development has added further bullish momentum to oil prices, following an earlier incident where an Iranian attack damaged Kuwaiti water and power plants, impacting multiple power generation units.

"Nobody is willing to hold a short position going into the weekend," said Darrell Fletcher, Managing Director of Commodities at Bannockburn Capital Markets.

With the escalating situation rekindling fears over transit through the Strait of Hormuz, crude prices have soared to near their highest levels in about a month, partially recovering from a roughly 30% decline in the second quarter. Prior to the conflict, about one-fifth of the world's oil transited through this critical maritime chokepoint.

The conflict is also affecting supplies of fuels like diesel and gasoline, pushing US refinery margins to record highs. Plans by Canada's largest refinery for a fall maintenance shutdown could exacerbate fuel market tightness in US regions that partly depend on its imports.

Meanwhile, Russian crude exports have dropped significantly following Ukrainian attacks on Russian refineries, which prompted Moscow to ban diesel exports. US lawmakers are also seeking to increase pressure, with senators releasing the text of a proposed bill to sanction buyers of Russian oil.

"The refined products market is tighter than the crude market," said Simon Lack, Portfolio Manager at Catalyst Energy Infrastructure Fund. "During the brief ceasefire, energy executives warned of persistently low inventories, leaving the entire system with almost no buffer."

Concurrently, Iran continues to attack its Gulf neighbors and conduct maritime assaults on vessels transiting the Strait of Hormuz, insisting that all ships must obtain its permission before passage. The heightened tensions are making shipping companies more cautious, with traffic through the strait declining substantially over the past ten days.

While tracked transit through the Strait of Hormuz has decreased, some voyages appear to be continuing, with a few tankers conducting ship-to-ship transfers off the coast of Oman.

Brent crude for September delivery rose 4.6% to settle at $88.10 per barrel.

W&T Offshore (WTI) crude for August delivery increased 4.5%, settling at $82.49 per barrel.