Oil prices rose Friday on doubts that the Strait of Hormuz will reopen soon, renewing concerns over supply disruptions in the Middle East.
Arab mediators working on a deal with Tehran to reopen the strait said they fear Iran's diplomats, who are under pressure from the country's hard-liners, lack the clout to guarantee compliance even if an agreement is reached.
Mediators said the main Iranian negotiators, Foreign Minister Abbas Araghchi and Parliamentary Speaker Mohammad Bagher Ghalibaf, swiftly embraced a recent plan to divide traffic through the strait into an inbound lane near Iran and an outbound lane near Oman. The strait is a key waterway through which one-fifth of the world's oil is transported.
However, the Islamic Revolutionary Guard Corps, which exerts control over the waterway, pressed for the right to charge fees for transits and to seek more explicit assurances that the U.S. will lift its blockade and sanctions on oil sales, according to the mediators.
Front-month West Texas Intermediate crude oil futures rose 1.7% to $78.61 a barrel and front-month Brent crude oil futures gained 2.0% to $84.17 a barrel, ICE data showed.
"Geopolitical risk remains elevated," UOB's global economics and markets research team said in a report.
"The Iran-Oman Strait of Hormuz deal remains unresolved," the team said, citing Iranian media reporting that any agreement would bar U.S. and Israeli vessels and require compensation from "hostile" nations.
These are "terms that appear far less acceptable to Washington than initial headlines suggested," the team added.
Equity markets were mixed across Asia, with sentiment weighed by Wall Street's declines overnight.
"Wall Street posted a corrective move," said Antonio Di Giacomo, senior market analyst at XS.com, in an email. "Investors chose to lock in part of the gains accumulated over recent sessions amid increased uncertainty driven by the rebound in oil prices and anticipation ahead of the release of the U.S. nonfarm payrolls report," he said.
This report is "one of the most important economic indicators for assessing the strength of the labor market and the outlook for Federal Reserve monetary policy," the analyst added.
Japan's Nikkei Stock Average dropped 0.8% and Taiwan's Taiex shed 0.5%. South Korea's Kospi fell 0.9% after swinging between mild gains and losses.
Meanwhile, Hong Kong's Hang Seng Index was 0.15% higher at midday while China's Shanghai Composite was up 0.5%.
"A lack of clarity over the Strait of Hormuz has investors questioning whether the strong rally at the start of the week was justified by perceived improvements in geopolitical negotiations," said José Torres, senior economist at Interactive Brokers.
While any deal on the strait is likely to be temporary and only partially reopen flows, "even limited progress could ease a key market overhang and provide another catalyst for equities," James Ooi, market strategist at Tiger Brokers, said in commentary.
For now, oil price volatility amid uncertainties surrounding the potential Iran-Oman deal to normalize energy shipping in the strait poses risks to oil-sensitive Asian currencies including the rupee, rupiah and baht, DBS Group Research strategist Chang Wei Liang said in a note.
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