Oil markets jolted higher on Tuesday, with crude prices touching their strongest levels in weeks after Iran-aligned Houthi rebels struck energy infrastructure inside Saudi Arabia and Tehran escalated its rhetoric against Washington, vowing “economic warfare” against the United States.
By 08:00 GMT, Brent crude futures had climbed $2.00, or 2.06%, to $99.00 a barrel, after touching an intraday peak of $99.22, its highest print since July 24. U.S. West Texas Intermediate crude tracked higher, gaining $2.93, or 3.2%, to trade at $94.41 a barrel, after earlier spiking to $94.60, a level not seen since June 8.
The rally was triggered in large part by developments inside Saudi Arabia, the world’s largest oil exporter, where operations at several energy facilities were halted Tuesday after Houthi forces launched attacks that left 73 people wounded.
Saudi authorities did not mince words, branding the strikes a “dangerous escalation,” language that underscored how close the kingdom’s critical energy infrastructure has come to being drawn directly into a conflict that has, until now, played out largely at sea and in the skies over the Gulf.
Compounding the market’s unease, Iran issued a pointed threat of “economic warfare” against the United States while claiming it had fired an advanced missile at American warships stationed in the region.
The declaration came just days after both sides traded direct blows once again, reviving fears that a fragile, months-long standoff could tip into a broader confrontation.
The latest exchange traces back to the weekend, when U.S. forces struck three Iranian oil tankers, among them a vessel near Kharg Island, Iran’s principal oil export terminal, according to U.S. Central Command.
Washington’s strikes followed attacks by Iran’s Revolutionary Guard Corps on U.S. naval assets operating in the Gulf, in a tit-for-tat pattern that has defined the conflict since it erupted in late February.
Nowhere is the anxiety more visible than in the Strait of Hormuz, the narrow waterway that has long served as the world’s most critical oil artery. Shipping traffic through the strait slowed further at the start of this week after Iran warned on Monday that it would retaliate against any fresh U.S. military action.
Before the conflict began, the strait carried roughly one-fifth of the world’s daily oil and liquefied natural gas supply, a share now under sustained threat as tanker owners grow increasingly wary of transiting the corridor.
“The price action reflects both genuine physical tightness tanker flows through Hormuz remain well below normal and a clear geopolitical risk premium,” said Tim Waterer, chief market analyst at KCM Trade. “Right now the risk premium is doing a lot of the heavy lifting.”
Waterer cautioned that the market’s elevated pricing is unlikely to unwind soon. “As for the rest of the year, oil looks set to remain elevated while the Strait stays contested and diplomatic progress remains fragile,” he said.
The disruption’s staying power is now being reflected in longer-term forecasts. Daniel Hynes, an analyst at ANZ, said normalcy in the strait is not likely to return anytime soon. “We don’t expect a full return to pre-war throughput until late Q1 or early Q2 2027,” Hynes wrote in a note to clients, a timeline that pushes any resolution well beyond the current market’s planning horizon.
Wall Street has taken notice. Goldman Sachs raised its price forecasts, lifting its Brent and WTI projections by $5 apiece to $85 and $80 a barrel, respectively, for December 2026, and to $80 and $75 for 2027.
The bank said the revision reflects a new base-case assumption that Middle East shipping disruptions will persist deep into next year, rather than resolve on a shorter timeline.
The turmoil isn’t confined to crude. In product markets, senior industry executives warned Tuesday that global diesel supply will stay tight, citing a familiar trio of pressures: a lack of spare refining capacity, Russia’s continued export ban, and the approach of peak winter heating demand in the Northern Hemisphere.
That combination threatens to keep distillate prices elevated even if crude markets eventually find their footing, a dynamic that could ripple through freight, agriculture, and industrial costs in the months ahead.
With Saudi energy infrastructure now directly in the line of fire, Iran escalating its rhetoric toward Washington, and Hormuz traffic slowing under the shadow of renewed retaliation threats, traders are bracing for a market where geopolitical risk, not fundamentals alone, continues to set the price of oil.
As Waterer put it, the risk premium is “doing a lot of the heavy lifting,” and with diplomatic progress described as fragile at best, few in the market expect that premium to unwind soon.
WHAT YOU SHOULD KNOW
Oil’s surge past $99 a barrel isn’t just about physical supply; it’s a geopolitical risk premium driven by the escalating Iran-Saudi-U.S. conflict in the Gulf.
With the Strait of Hormuz traffic disrupted, Saudi facilities under direct attack, and analysts now pushing full recovery timelines out to 2027, the key takeaway is this: prices are likely to stay elevated for an extended period, not because oil is scarce, but because the threat of further escalation shows no sign of easing.
