Oil prices climbed in early Asian trade on Monday after the U.S. struck Iran for the first time in over a month, with Iran then retaliating against U.S. bases in Jordan.
At the time of writing, WTI front-month futures were trading at $85.46 per barrel, up 2.47%, while Brent front-month futures had climbed 2.71% to $90.49 per barrel.
The latest escalation started on Sunday when U.S. forces struck two Iranian rocket launchers on Larak Island, which sits inside the Strait of Hormuz. According to a U.S. Central Command spokesperson, the attack came after the IRGC were observed “preparing to launch rockets with sea mines into the Strait of Hormuz.”
CENTCOM later described the action as a “limited, precise action against IRGC minelaying forces posing an imminent threat in the Strait of Hormuz.”
It was only last week that President Trump claimed that the U.S. had finished clearing mines from the Strait and warned that any ship or boat placing new mines would be “immediately and systematically destroyed”.
Iran responded to the Larak strike by launching ballistic missiles and drones at U.S. military installations in Jordan.
The Jordanian Armed Forces said on Monday morning that its air defenses had intercepted and destroyed eight missiles after they entered Jordanian airspace.
The IRGC then confirmed that it had targeted technical and maintenance infrastructure and fighter aircraft positions at two U.S. bases in Jordan and warned that Iran would “forcefully respond” to every new U.S. strike.
That leaves the oil market in an all-too-familiar position of attempting to establish if this will become another contained round of escalation or if it is the beginning of another major disruption for Gulf oil exports.
Brent's move back above $90 is significant, but prices remain well below the levels seen during earlier periods of the war. Both benchmarks fell more than 4% last week, and the early 2% gain has done little to offset broader market losses.
Nevertheless, traffic through the Strait remains well below levels seen before the war, and there are growing fears that the recent selloff in oil may have outrun the reality of today’s physical market.
Over the weekend, visible commodity-vessel traffic through the Strait had dropped to around five ships per day, and UK Maritime Trade Operations issued a warning that another tanker transiting through the Strait had been struck by an unknown projectile.
Meanwhile, Centcom gave an update on its blockade of Iranian ports, with 83 commercial vessels redirected, three disabled, and two boarded as of August 30.
The combination of low traffic, attacks on shipping, the U.S. blockade, and renewed attempts from the IRGC to mine the Strait suggests the geopolitical premium isn’t going anywhere anytime soon.
It is also notable that the latest attacks come just as the U.S. was attempting to move away from military operations toward economic pressure, with the U.S. Treasury launching what was described as an ‘economic D-Day’.
For now, traders will be watching for any further signs of escalation while keeping a particularly close eye on oil flows through the Strait in the coming days.
By Josh Owens for Oilprice.com
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