US -Iran war: Oil prices jumped more than 3% on Thursday, extending their rally as the escalating US–Israeli conflict with Iran disrupted crude flows to key importers.
Brent crude climbed $2.65, or 3.26%, to $83.99 per barrel, marking its fifth consecutive session of gains. Meanwhile, US West Texas Intermediate (WTI) crude rose $2.76, or 3.70%, to $77.42.
Crude markets have remained on edge amid persistent supply risks following the Middle East attacks, with particular concern focused on the flow of oil through the Strait of Hormuz.
What’s behind the oil price rally?
Iran continued firing missiles at Israel early Thursday, forcing millions of residents to take shelter in bunkers as the conflict entered its sixth day. The attack came only hours after efforts in Washington to stop the ongoing US air assault were blocked.
According to a Reuters report, a US submarine sank an Iranian warship off the coast of Sri Lanka, leaving at least 80 people dead, on Wednesday. Meanwhile, NATO air defence systems intercepted and destroyed an Iranian ballistic missile that was launched toward Turkey.
Iranian forces have also targeted oil tankers in and around the Strait of Hormuz. Explosions were reported near a tanker off the coast of Kuwait, according to the United Kingdom Maritime Trade Operations.
The latest escalation occurred as the influential son of Iran’s slain supreme leader emerged as a top candidate to replace him, signalling that Tehran is unlikely to yield to pressure. The development comes five days after the US and Israel began a military campaign that has killed hundreds and shaken global markets.
Officials were quoted as saying by Reuters that Iraq, which is the second-largest crude producer in the Organisation of the Petroleum Exporting Countries, has reduced its oil output by almost 1.5 million barrels per day due to limited storage capacity and the absence of an export route.
According to Bloomberg, further reports suggest that the Chinese government has instructed its largest refiners to suspend exports of diesel and gasoline, reflecting efforts to prioritise domestic demand as the crisis deepens. Bloomberg also reported that earlier this week, a major Indian processor told customers it would halt product exports, while Japanese refiners have asked their government to release oil from strategic petroleum reserves, indicating the direness of the situation.
Crude oil prices outlook
Brokerage firm Shriram Wealth said in a note that a steep rise in crude oil prices is less likely to continue, given the US mid-term elections later this year.
It expects crude oil prices are expected to move back towards USD $70/barrel, on the easing of tensions in the Middle East.
“The scope of this conflict appears worse, with ongoing tensions likely to be longer than the 12-day war in Jun following retaliation by Iran across strategic locations. However, tensions could ease over the next five to six weeks. Markets will be watching any intervention from Russia and China, considering that a sizeable portion of China’s imported crude oil moves via the Strait of Hormuz, and they would be keen to cap oil prices and normalise logistics—this hope is reflected in the relatively less dramatic market reaction across indicators,” the firm said in the note.
On the other hand, other brokerages are expecting crude oil prices to jump to $90-$100 per barrel.
Brokerage firm JM Financial said in a report that upside risk to crude price exists and it can easily jump to $90–100/bbl in the near term, if Iran can block the key Strait of Hormuz for a prolonged period (though that is a low-probability event based on historical precedents of past wars).
“Iran’s current crude output is ~3.5mmbpd, of which it exports 1.5–2mmbpd (almost 90% to China). Though the US is unlikely to damage Iran’s oil & gas assets, any disruption to Iran’s crude exports of 1.5-2mmbpd can be absorbed in a well-supplied oil market given likely: i) oversupply of ~3.7mmbpd in CY26; and ii) 1–2mmbpd of spare capacity with Saudi Arabia,” the firm said.
(With inputs from agencies)
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