Oil markets swung wildly on Thursday as renewed U.S.-Iran military exchanges drove crude prices sharply higher before a partial pullback exposed the widening disconnect between geopolitical alarm and actual supply disruption.
Brent crude futures rose 8 cents, or 0.09%, to $93.18 a barrel by early morning trading in London, while U.S. West Texas Intermediate climbed 25 cents, or 0.28%, to $90.28 a barrel.
Both benchmarks had surged more than $2 in the opening hours of the session before giving back the bulk of those gains, a volatile pattern that has become grimly familiar since hostilities between Washington and Tehran erupted on February 28.
The immediate catalyst was stark: Iran’s joint military command formally announced the closure of the Strait of Hormuz to all maritime traffic, including oil tankers and commercial vessels, warning that any ship attempting passage would be fired upon.
The declaration transformed what had been an effective, if contested, blockade into an explicit military ultimatum against the arteries of global energy supply.
The Strait of Hormuz, the narrow waterway separating Iran from the Arabian Peninsula, is arguably the single most consequential passage in global energy infrastructure.
At its narrowest point, barely 33 kilometers wide, the Strait has historically served as the transit route for roughly 20% of the world’s oil supply and a significant proportion of liquefied natural gas shipments destined for energy-hungry markets in Asia and Europe.
Iran’s formal closure declaration, backed by the threat of military force against civilian vessels, raised the specter of a complete paralysis of Gulf energy exports, a scenario that energy economists have long described as one of the most destabilizing shocks conceivable for the global economy.
“It once again suggests a deal is still some way off and that energy flows from the Persian Gulf will remain heavily constrained,” analysts at ING wrote in a note to clients, pointing to the renewed escalation as the driver of the early morning price rally.
The Iranian declaration came in direct response to fresh American military strikes. U.S. forces launched additional strikes against multiple targets inside Iran beginning at 5:15 p.m. Eastern Time on Wednesday, the latest salvo in an escalating exchange of attacks that threatens to extinguish the fragile ceasefire that had temporarily paused the conflict in early April.
Speaking to Fox News reporter Trey Yingst on Wednesday evening, Trump indicated the current round of strikes would cease shortly but issued a blunt ultimatum to Tehran’s leadership: sign an agreement immediately, or face even more devastating military consequences.
The White House has not provided details of the terms it is seeking from Iran, but the combination of military pressure, an effective naval blockade of Iranian exports, and now the threat of expanded strikes suggests Washington is pursuing a maximalist negotiating position that Tehran has, so far, shown no willingness to accept.
Despite the severity of the headline news, oil traders proved reluctant to fully price in the worst-case scenario, at least for now.
“The rally was not fully sustained, as the market has not yet seen an actual disruption in oil shipments through the area,” said Linh Tran, market analyst at XS.com, capturing the tension that has defined crude trading for months: the difference between declarative threats and physical supply disruption.
Indeed, the U.S. military posted on X on Wednesday that commercial ships continued to transit in and out of the Strait and confirmed that no American warships had been struck, a pointed rebuttal to Iranian state media reports claiming that U.S. vessels near the waterway had been targeted by missiles and drones.
It is a contradiction that traders have learned to live with: a strait that is simultaneously “closed” by Iranian declaration and “open” by U.S. naval assertion, with the truth somewhere in the dangerous waters between the two.
Beneath the day-to-day price volatility, the structural damage to global oil supply is becoming increasingly difficult to paper over.
U.S. crude inventories fell by 7.2 million barrels to 426.5 million in the week ended June 5, the U.S. Energy Information Administration reported Wednesday, nearly double the 4 million-barrel draw that analysts had forecast in a Reuters poll.
Since the Iran war began on February 28, U.S. crude inventories, including strategic reserves, have tumbled by a staggering 79 million barrels, as the world’s largest producer has been forced to release stockpiles to compensate for disrupted Gulf flows.
OPEC output, meanwhile, slid to its lowest level in over two decades in May, the U.S. naval blockade choked off Iranian exports while Tehran’s effective closure of the Strait simultaneously throttled shipments from other Gulf producers, Saudi Arabia, the UAE, Kuwait, and Iraq, among them, whose crude exports must pass through the same narrow waterway.
The implications for prices, supply security, and global economic growth grow more acute with each passing week of unresolved conflict.
Abu Dhabi National Oil Company and select other Gulf producers have also managed to export some crude through alternative routes and made offers to Asian buyers, providing a thin but meaningful lifeline to consuming nations increasingly anxious about the security of their energy supply chains.
The longer the strait remains contested, and the further the U.S.-Iran conflict escalates, the harder and more expensive those workarounds become. Longer tanker routes around the Cape of Good Hope add weeks to delivery times and millions of dollars to freight costs, expenses that ultimately flow through to consumers and businesses worldwide.
What remains elusive, analysts and diplomats agree, is any credible path to a negotiated settlement. The April ceasefire, which briefly raised hopes of a diplomatic off-ramp, has now been effectively abandoned, replaced by fresh military strikes and increasingly bellicose rhetoric from both Washington and Tehran.
With U.S. elections casting a long shadow over presidential decision-making, Iran’s leadership facing its own internal pressures, and oil prices sitting at levels that are simultaneously too high for consuming economies and arguably still too low to force a swift resolution, the conditions for compromise remain stubbornly absent.
For oil traders, energy ministers, and the billions of people whose daily lives depend on affordable, reliable fuel, Thursday’s volatile session was another uncomfortable reminder: this crisis is far from over, and the world is still paying and will likely continue paying a steep price for it.
WHAT YOU SHOULD KNOW
The U.S.-Iran conflict has entered a dangerous new phase, with Tehran formally closing the Strait of Hormuz to all shipping, threatening to fire on any vessel attempting passage. At the same time, Washington continues military strikes, and President Trump vows even harsher attacks if no deal is reached.
The world’s most critical oil chokepoint is now a live war zone, and global energy markets are paying the price. U.S. crude reserves have plummeted by 79 million barrels since the war began, OPEC output has hit a two-decade low, and with no credible peace deal in sight, the squeeze on global oil supply will only deepen.
Every day this conflict continues without resolution is a day the global economy edges closer to a serious energy crisis.
