Crude Oil Prices Rise 2% to Six-Week High as US-Iran Tensions Escalate

Key Takeaways

• Brent crude climbed 2% to $96 per barrel, while WTI advanced 1.7% to $88.27.
• Renewed US attacks on Iran increased concerns about tanker traffic through the Strait of Hormuz.
• Red Sea shipping threats supported prices, although an unexpected rise in US crude inventories limited gains.

Brent and WTI Extend Their Gains

Crude oil prices rose to their highest levels in more than six weeks on Thursday, July 23, as escalating conflict between the United States and Iran renewed concerns about disruptions to global energy supplies. Brent crude futures gained $1.93, or 2%, to $96 per barrel, reaching their highest level since June 8. The international benchmark had already climbed by more than $3 in the previous session to settle at $94.07. US West Texas Intermediate crude increased $1.44, or 1.7%, to $88.27 per barrel, extending Wednesday’s advance of nearly 3%.

The latest rally reflects a growing geopolitical risk premium as military activity threatens two strategically important shipping routes: the Strait of Hormuz and the Bab el-Mandeb Strait. Disruption at either waterway could slow energy exports, raise freight and insurance costs, and force some tankers to use longer routes.

Renewed US Strikes Increase Geopolitical Risk

The US military conducted another round of attacks against Iran, marking the twelfth consecutive night of strikes. The escalation followed a warning from US President Donald Trump that Iranian infrastructure could be targeted in response to further attacks on commercial ships in the Strait of Hormuz. The renewed military campaign has increased uncertainty over the security of tankers operating around the Gulf. Even without a complete halt to exports, the risk of attacks can discourage ships from entering the region and make transporting crude more expensive.

Iran’s Revolutionary Guards reported that an oil tanker caught fire following an explosion while attempting to pass through a route south of the Strait of Hormuz. Two other tankers reportedly turned back after the incident. Iranian officials claimed that the waterway remained under their control and was effectively closed while US military operations continued, warning that vessels would not be allowed to enter or leave without coordination with Iran.

Why the Strait of Hormuz Matters to Oil Prices

The Strait of Hormuz connects the Persian Gulf with the Gulf of Oman and the wider Arabian Sea. It is the main export route for several major Middle Eastern energy producers, including Saudi Arabia, the UAE, Iraq, Kuwait, and Qatar. Around 20 million barrels of oil passed through Hormuz each day in 2024, equivalent to approximately 20% of global petroleum liquids consumption. More than one-quarter of global seaborne oil trade also travelled through the strait.

Its importance means that even temporary shipping restrictions can produce large movements in crude prices. Although Saudi Arabia and the UAE operate pipelines capable of bypassing Hormuz, available alternative capacity is significantly smaller than the volume normally transported through the waterway. Asian economies could face the greatest direct impact from a prolonged disruption, with China, India, Japan, and South Korea being among the largest destinations for crude exported through Hormuz.

Red Sea Threats Add to Supply Concerns

Oil-market uncertainty also increased after Yemen’s Iran-aligned Houthi movement announced a naval blockade targeting Saudi Arabia. The group threatened vessels carrying Saudi crude through the Bab el-Mandeb Strait, which connects the Red Sea with the Gulf of Aden. The Houthis claimed they had attacked two Saudi oil tankers, while maritime security reports indicated that the Saudi-flagged tanker Encelia had been struck. The group also warned several ships against travelling towards Saudi ports, forcing some vessels to change course.

A disruption in the Red Sea would have different consequences from restrictions around Hormuz. Tankers can avoid the Bab el-Mandeb Strait by travelling around the Cape of Good Hope, but the alternative route is longer and more expensive. The simultaneous threat to both shipping corridors creates a more complicated challenge for global supply chains, with producers facing fewer options for rerouting exports and buyers potentially required to pay higher transport and insurance costs.

US Crude Inventory Increase Limits the Rally

Despite the geopolitical support, oil-price gains were partially restrained by an unexpected increase in US crude supplies. Commercial crude inventories rose by 2 million barrels during the latest reporting week, according to the US Energy Information Administration. Analysts had expected stockpiles to fall by approximately 1.1 million barrels. The build was attributed to lower refinery activity, weaker crude exports, and higher imports. Rising stockpiles generally suggest that domestic supply is sufficient relative to current demand, which can place downward pressure on WTI.

However, the inventory data had a limited effect on Thursday because traders remained focused on developments in the Middle East. The risk of disruption to international exports currently appears to carry more weight than the weekly change in US stockpiles.

Oil Outlook Depends on Middle East Shipping Conditions

Crude prices may remain volatile as the market evaluates whether recent attacks will cause sustained physical supply losses. Further restrictions around Hormuz or confirmed damage to tankers and energy infrastructure could keep Brent supported near the mid-$90 range and bring the psychological $100 level into focus. Conversely, signs of de-escalation or a recovery in tanker traffic could reduce the geopolitical premium relatively quickly. The broader supply outlook remains less supportive over the longer term, with the EIA expecting recovering Middle Eastern production and rebuilding global inventories to eventually place downward pressure on prices.

For now, crude oil prices remain primarily driven by security conditions around the Strait of Hormuz, attacks in the Red Sea, and the direction of the US-Iran conflict.