(Bloomberg) — Oil edged lower, paring Monday’s gain, as traders tracked tensions in the Middle East after fresh clashes between the US and Iran.
Brent fell toward $113 a barrel, after surging 5.8% on Monday, while West Texas Intermediate was near $104. The military fought off Iranian attacks as it guided two US-flagged vessels through the Strait of Hormuz, US Central Command said. In the United Arab Emirates, an oil terminal in Fujairah was hit.
The fresh round of hostilities came as the US sought to clear a path through the waterway for stranded vessels, casting doubt on the four-week ceasefire between Washington and Tehran. President Donald Trump said the war may last another two to three weeks in comments to Salem News Channel.
US destroyers USS Truxtun and USS Mason had transited the strait and entered the Persian Gulf, CBS reported, citing unidentified defense officials. The vessels were supported by Apache helicopters and other aircraft and faced a series of coordinated threats during their passage, CBS said.
Defense Secretary Pete Hegseth will brief reporters at the Pentagon later Tuesday, with General Dan Caine, chairman of the Joint Chiefs of Staff.
Brent crude has rallied by almost 90% this year as the conflict deprived the market of millions of barrels of oil, with the strait still all-but-impassable and wells shut-in around the region. The waterway has been subject to a double blockade, with Tehran seeking to prevent ships from transiting, while Washington stops boats sailing to or from the Islamic Republic.
The attacks “all point to the ceasefire fraying,” said Saul Kavonic, senior energy analyst at MST Marquee. “Oil could jump materially higher if the war resumes and especially if damage to more oil infrastructure ensues.”
Iranian Foreign Minister Abbas Araghchi said talks with Washington were “making progress” but the US and the UAE “should be wary of being dragged back into quagmire,” according to a post on X. Events in Hormuz made clear “there’s no military solution to a political crisis,” he added.
In the gulf, hundreds of vessels were seen clustering near Dubai on Tuesday, as ships moved away from the strait. The shift apparently came in response to a move by Iran to widen its so-called control zone, with new boundaries that are to be defended by the Islamic Revolutionary Guard Corps.
“I’m not expecting a quick reopening of bi-directional flows through the strait,” said Anoop Singh, global head of shipping research at Oil Brokerage Ltd. “The US is attempting to level the power balance in the strait and that’s been reciprocated against by Iran. It’s escalation.”
Spiking energy costs have fanned concerns the conflict will stoke inflation while hurting growth. In the US Treasury market, 30-year yields climbed to the highest since July, topping 5%, as traders boosted wagers the Federal Reserve will have to reverse course and raise rates to curb price gains.
In Asia, there are similar concerns. In the Philippines, consumer prices rose 7.2% in April from a year earlier, the fastest pace in three years, according to the local statistics authority. The Southeast Asian nation typically imports nearly all of its oil needs from the Middle East.
Adding to tensions on Monday, the UAE said it intercepted Iranian cruise missiles and blamed a drone strike for a large fire at Fujairah port, a key terminal that sits outside the Persian Gulf. The Gulf state issued several missile alerts to its residents for the first time since the ceasefire between Washington and Tehran began nearly a month ago.
“Escalation seems to be the path,” said Carl Larry, oil and gas analyst at Enverus. “Peace is dimming and what happens during an escalation is anyone’s guess, but it won’t be good.”
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–With assistance from Charles Gorrivan and Weilun Soon.
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