Oil markets lurched sharply higher on Monday as a renewed exchange of military strikes between the United States and Iran shattered weeks of relative calm, sending traders scrambling to reassess the risk of a full-blown disruption to one of the world’s most critical energy corridors.
Brent crude futures jumped $2.67, or 3.51 percent, to $78.68 a barrel by 07:43 GMT, while U.S. West Texas Intermediate crude climbed $2.48, or 3.47 percent, to $73.89.
The rally marks one of the sharpest single-session moves in weeks and underscores how quickly sentiment can turn in a market still haunted by the prospect of a shutdown at the Strait of Hormuz, the narrow waterway between Iran and Oman through which roughly a fifth of the world’s oil and liquefied natural gas has historically flowed.
The latest flare-up followed a weekend of tit-for-tat military action that appeared to unravel months of painstaking diplomacy. Iranian forces struck U.S. facilities across the Gulf on Sunday, and Tehran again declared the Strait of Hormuz closed to shipping. Iran’s Revolutionary Guards said Monday they had gone further still, striking American military installations in both Kuwait and Bahrain.
The exchange came after U.S. Central Command carried out waves of strikes against Iranian targets, which it said were intended to degrade Tehran’s ability to threaten commercial vessels transiting the strait, an action that followed accusations that Iranian forces had attacked a container ship attempting to pass through the waterway.
In a statement, CENTCOM insisted the strait remains a vital corridor for global trade that Iran does not control and said U.S. forces stood ready to preserve freedom of navigation.
Iran has pushed back forcefully against that framing. Tehran’s Persian Gulf Strait Authority, which claims the right to manage traffic through Hormuz, has warned that vessels crossing the waterway without using its designated route would not be guaranteed safe passage, placing responsibility for any “consequences” on ship owners, operators, and commanders.
“Shipping operators are adopting a cautious approach, and inbound movements have slowed under heightening security concerns,” analysts at ANZ said, capturing a mood of retreat among carriers unwilling to risk vessels and crews in an increasingly contested waterway.
The latest violence casts fresh doubt over an interim U.S.-Iranian agreement reached last month, which had been designed to reopen the strait to normal traffic and pave the way toward ending hostilities following a further 60 days of negotiation.
That memorandum had briefly restored a measure of confidence to energy markets; oil prices had drifted back toward pre-conflict levels in the weeks after it was signed, but the accord’s vague language on who ultimately controls passage through the strait left room for exactly the kind of dispute now playing out.
Vessel traffic through Hormuz, which numbered well over a hundred transits a day before the war began, has collapsed repeatedly during each bout of fighting.
Ship-tracking data cited by Kpler showed just six vessels transited the strait on Sunday, a five-week low echoing similarly thin traffic counts recorded by other maritime intelligence platforms during previous flare-ups this month.
The International Energy Agency, in its monthly report released Friday, noted that global oil supply had risen by 4.1 million barrels per day in June following the interim deal, yet output remained 9.4 million barrels per day below levels seen before the war erupted, a reminder of just how much capacity has been sidelined by more than four months of intermittent conflict.
Amid the confusion, U.S. President Donald Trump maintained Sunday that the Strait of Hormuz remained open to commercial traffic, directly contradicting Iran’s declaration that it had closed the waterway after striking a vessel it said had strayed onto an unauthorized route.
The dispute reflects a broader and unresolved argument between Washington and Tehran over whether the strait constitutes fully international waters or falls partly under Iranian territorial control, a disagreement that has repeatedly complicated efforts to guarantee safe passage.
Even as the latest violence rattled markets, longer-term forecasts suggest the Gulf’s chokehold on global energy flows may gradually loosen. Goldman Sachs estimated that expanding pipeline capacity across the Middle East could shield more than 60 percent of pre-war Gulf oil exports from any future Hormuz disruption by the end of 2028.
The bank’s base case assumes bypass pipeline capacity will grow by 3.8 million barrels per day by the end of 2027 and by a cumulative 7.3 million barrels per day by the end of 2028, pushing total effective capacity able to skirt the strait entirely above 14 million barrels per day by that point.
Such infrastructure, largely running through Saudi Arabia to the Red Sea and via Omani territory, has already proven its worth during the current conflict: Gulf producers with alternative routes have fared far better commercially than those, including Iraq, Kuwait, Qatar, and the United Arab Emirates, left dependent on the strait.
Tehran’s own oil sales have told a more complicated story. Iranian crude held in floating storage has been rising again after the country ramped up exports during the brief window of calm created by the interim deal. But demand for that crude has been tepid: independent Chinese refiners, long the most reliable buyers of discounted Iranian barrels, have increasingly turned to cheaper alternatives from Iraq, the UAE, and Qatar instead.
Adding to the sense of a market recalibrating around lower Gulf premiums, the Abu Dhabi National Oil Company set its August official selling price for benchmark Murban crude at $80.01 a barrel on Monday, a steep drop from $101.48 the previous month, illustrating how sharply regional pricing has adjusted even as the security situation remains volatile.
Analysts caution that markets, having watched this cycle of strike-and-de-escalate play out several times since the war began in late February, are increasingly pricing in a “new normal” of periodic skirmishes rather than an all-out, sustained closure of the strait.
Even so, few are willing to rule out further spikes. With refiners locking in supply decisions weeks in advance and OPEC+ continuing to expand output quotas, traders are betting that prices will stay elevated and volatile but unlikely, for now, to revisit the extreme highs seen at the conflict’s outset unless the current escalation spirals further out of control.
WHAT YOU SHOULD KNOW
Oil prices jumped over 3% Monday as renewed U.S.-Iran strikes shattered a fragile truce and reignited fears of a Strait of Hormuz shutdown, the waterway carrying roughly a fifth of the world’s oil and LNG.
This is a market pricing in recurring conflict, not a one-off shock. Traffic through the strait keeps collapsing every time fighting flares, supply remains 9.4 million bpd below pre-war levels, and the interim U.S.-Iran deal meant to secure the strait is now in serious doubt.
Longer-term, new pipeline capacity could shield most Gulf exports from Hormuz risk by 2028, but that’s years away, so for now, expect continued volatility tied directly to the pace of strikes and negotiations, not a lasting resolution.
