International crude oil prices have continued their upward trajectory, fueled by heightened market anxiety over potential energy supply disruptions in the Strait of Hormuz following a second consecutive day of U.S. military strikes against Iran.
During early Asian trading on Thursday, the August West Texas Intermediate (WTI) crude futures contract on the New York Mercantile Exchange rose as much as 2.2%, briefly breaking above $75 per barrel, before retreating to around $74.24. This followed a surge of over 4% on Wednesday.
The September Brent crude futures contract on the Intercontinental Exchange settled 5.2% higher at $78.02 on Wednesday, and climbed further on Thursday to surpass $79, marking a fresh high for more than two weeks.
The escalation stems from an announcement by the U.S. Central Command on Wednesday that it was conducting new strikes against Iran, aimed at degrading its ability to threaten freedom of navigation in the Strait of Hormuz. A U.S. official indicated the scale of this operation was expected to exceed Tuesday's attack.
Reports from Iranian media cited explosions in multiple locations including Bandar Abbas, Abu Musa island, and Bushehr. Iran has threatened a large-scale retaliatory attack on U.S. bases in the region, claiming it has already targeted U.S. military assets in Bahrain and Kuwait, which prompted further retaliatory strikes from the U.S.
U.S. President Donald Trump stated on Wednesday that the temporary peace agreement with Iran was "over," leaving open the possibility of reimposing a blockade on Iranian ports. He warned that oil prices could climb further and even hinted that U.S. strikes might include "taking over" Iran's key crude export hub, Kharg Island.
In a social media post, Trump described the U.S. airstrikes as "retribution" for Iranian attacks on commercial vessels and warned that "if it happens again, the consequences will be more severe." However, he simultaneously ruled out the possibility of a full-scale war.
The escalating tensions are directly impacting Iranian oil exports. Earlier this week, the U.S. Treasury Department revoked a sanctions waiver that had permitted Iran to sell oil, completely reversing a key element of the previous temporary agreement. While that deal was in effect, millions of barrels of Iranian crude were shipped from the Gulf; the fate of that oil is now highly uncertain.
The status of the Strait of Hormuz is a primary market focus. Following U.S.-Israeli airstrikes on Iran in late February, Iran forced the strait to be nearly completely shut, compelling surrounding oil-producing nations to shut in oilfields as storage tanks filled. While tanker traffic rebounded somewhat after the temporary deal was reached, analysts believe conditions never fully normalized.
Scott Shelton, an analyst at commodities broker TP ICAP, noted: "If we are faced with a closed Strait of Hormuz again, oil prices could rise another $10. But if oil keeps flowing, there may be limited room for further upside. The situation is uncertain for everyone right now."
Henry Hoffman, co-portfolio manager at Catalyst Energy Infrastructure Fund, pointed out: "The strait never truly reopened in a normalized way, and now we may see further production shutdowns. A larger escalation could cause more significant damage to regional energy infrastructure, with impacts far exceeding the initial price spike."
Following attacks on two tankers on Tuesday, maritime authorities have raised the threat level for navigation in the Strait of Hormuz to "severe." Approximately one-fifth of the world's pre-war oil supply transits this waterway, and Iran's control over the passage has been a key bargaining chip in the conflict.
Analysts including Daniel Hynes at ANZ noted in a report that events over the past 48 hours have raised market concerns that the breakdown of the U.S.-Iran temporary peace deal will lead to renewed oil supply disruptions. "Transit volumes through this critical waterway had been rising prior to the attacks on three vessels earlier this week. Now, as Iran seeks to reassert control, there is a risk that the supply recovery grinds to a halt."
As the conflict persists, oil inventories are also under pressure. Official data showed that while U.S. commercial crude inventories rose by nearly 3 million barrels last week, a drawdown of 6.2 million barrels from the Strategic Petroleum Reserve resulted in a net overall inventory decline of over 3 million barrels.
Furthermore, distillate fuel oil (diesel) inventories fell by 5 million barrels, while gasoline stocks dropped to their lowest level for this time of year since 2012.
Catalyst's Hoffman added: "The state of the U.S. Strategic Petroleum Reserve is becoming increasingly concerning. We continued to draw from strategic stocks even during the ceasefire, leaving a more limited buffer if the situation deteriorates or expands."
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