Oil prices climbed sharply in early Asian trade on Monday, as the U.S. Navy intercepted an Iranian vessel it accused of attempting to break its blockade. The seizure reignited fears of a major escalation in the conflict and a prolonged disruption in the Strait of Hormuz.
At the time of writing, West Texas Intermediate had jumped 6.21% to $89.06, while Brent was trading at $95.14, 5.27% higher on the day. The price spike came on the back of a dramatic selloff on Friday when both benchmarks dropped by more than 9% after Iran agreed to reopen the Strait and the U.S. signaled optimism around potential peace talks.
That optimism evaporated over the weekend when the U.S. seized an Iranian-flagged vessel named Touska that it accused of attempting to break through its blockade. The seizure came on the back of the IRGC firing on two ships attempting to pass through the Strait, claiming that they would be closing the Strait until the U.S. blockade was lifted.
Iran immediately condemned the seizure as “maritime piracy” and warned of imminent retaliation, raising doubts that the already tenuous ceasefire will hold.
According to the Tasnim News Agency, Tehran has yet to decide if it will send a negotiating team to Islamabad on Monday for talks, but claimed that “no talks will take place as long as the US’ naval blockade remains in effect.”
President Trump has said that the U.S. negotiators will be in Islamabad on Monday, adding that if Iran doesn’t take the deal, the U.S. will target every single power plant and bridge in the country.
While more than 20 vessels successfully transited the Strait on Saturday, the highest volume since March 1, confidence that tanker traffic will return has been severely shaken. Oil market participants require long-term certainty that there will be a sustained safe passage through the Strait.
ADNOC Managing Director Dr. Sultan Al Jaber summarized the issue neatly, saying that after 50 days, almost 600 million barrels have been blocked. He called on the Strait of Hormuz to “be returned to the world. Exactly as it was.”
With ceasefire conditions deteriorating, negotiations stalled, and military posturing intensifying on both sides, traders are once again pricing in a sustained disruption scenario.
Oil market participants will be watching Monday’s talks closely and be particularly wary of announcements as the U.S. market opens. Until then, supply issues are only getting worse.
By Josh Owens for Oilprice.com
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