Oil prices surged in early Asian trade on Friday after Iran and the U.S. exchanged fire in the Strait of Hormuz, threatening to break the very fragile ceasefire that has held for a month so far.
At the time of writing, Brent crude had climbed 2.64% to $102.70 per barrel, while West Texas Intermediate was trading 1.95% higher at $96.66.
The latest escalation in the conflict has been the most serious confrontation since the ceasefire took effect in early April, with Iran’s military accusing the U.S. of violating the ceasefire by targeting an Iranian oil tanker and another vessel. When asked whether the ceasefire was still in effect, Trump suggested it was still in effect because if it wasn’t, then there would be “one big glow coming out of Iran”.
U.S. Central Command confirmed U.S. strikes inside Iran but described them as “self-defense strikes” after “unprovoked Iranian attacks”. The strikes came as three U.S. destroyers transited the Strait of Hormuz and came under fire from Iranian missiles, drones, and small boats. The U.S. claimed it then “eliminated inbound threats and targeted Iranian military facilities responsible for attacking U.S. forces.”
President Trump later said that “There was no damage done to the three Destroyers, but great damage done to the Iranian attackers.”
The renewed hostilities come just days after Iranian attacks on UAE targets set an oil facility in Fujairah ablaze, leading Trump to pause “Project Freedom” due to frustration from his GCC allies. Reporting from the Financial Times suggests that the attempt to guide merchant vessels through the Strait had to be paused after Saudi Arabia refused to allow Washington to use its bases and airspaces for the mission.
The suspension of Project Freedom, apparent tensions between the U.S. and its Gulf allies, and these latest attacks on U.S. destroyers all point toward a potential escalation in the conflict.
In the meantime, Washington and Tehran remain engaged in talks over a proposed framework that would formally end the war, reopen Hormuz, and launch broader negotiations over Iran’s nuclear program. It remains unclear how the two sides will resolve some of their more intractable disagreements, but until the latest attacks, optimism over some sort of agreement had dragged oil prices down dramatically on Thursday.
Volatility remains the only certainty in today’s oil markets, with physical shortages becoming an increasingly visible problem around the world.
By Josh Owens for Oilprice.com
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