Oil prices rose on Monday after the conflict between the United States and Iran became more intense over the weekend, raising fears that global oil supplies could be disrupted. Brent crude oil, the international benchmark, climbed to around $77-$78 per barrel on Monday. This is about 7% higher than before the war began.
Wall Street is closely watching the Middle East conflict because higher oil prices could affect inflation, interest rates and the global economy, according to Fortune. The biggest concern is the Strait of Hormuz, one of the world’s most important shipping routes for oil. Around 20% of the world’s oil passes through this narrow waterway.
Ship traffic through the Strait of Hormuz has fallen sharply. Only 14 ships passed through on Sunday, compared with more than 130 ships a day before the war, according to maritime data firm Kpler, cited by the New York Times. The drop in ship traffic has increased fears that less oil could reach global markets, pushing prices higher.
US and Iran attacks continue
Over the weekend, the US military said it struck around 140 targets in Iran after Tehran allegedly attacked a commercial container ship in the Strait of Hormuz. Iran’s military said it responded by launching attacks on US military targets in Bahrain, Jordan and Kuwait. Fortune also reported that Iran’s Islamic Revolutionary Guard Corps (IRGC) claimed responsibility for attacks on US bases in Bahrain, Kuwait and Jordan.
The US Central Command (CENTCOM) said its military action came after Iran attacked another commercial ship in the Strait of Hormuz. These fresh attacks have increased fears that commercial ships may avoid the Strait, making it harder to transport oil safely.
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Amena Bakr, Head of Middle East Research at Kpler, said the confidence that shipping companies had slowly regained over the past few weeks has now disappeared, according to New York Times. Bakr said confidence in using the Strait of Hormuz “eroded very, very quickly” and that the shipping situation is now “back to square one.” Although oil prices have risen, they are still much lower than the nearly $120 per barrel seen during the worst period of the war.
Oil supply and fuel prices
Last month, the US and Iran agreed to a preliminary ceasefire, which allowed more ships to move through the Strait and increased global oil supplies. The International Energy Agency (IEA) said this recovery helped oil exports from the Persian Gulf rise by 6.5 million barrels per day in June, reaching around 16 million barrels per day. Higher oil exports last month also helped reduce oil prices, according to the International Energy Agency. However, the IEA said June’s exports were still only about two-thirds of pre-war levels, showing that the recovery remained incomplete.
The IEA warned that a full recovery depends on a quick reduction in fighting between the US and Iran. Economists now fear that if attacks continue, higher oil prices could hurt businesses and consumers by increasing fuel costs. In the United States, the average gasoline price reached $3.87 per gallon on Monday, up from $3.80 a week earlier, according to AAA, cited by the New York Times. Diesel prices also increased to $4.88 per gallon, compared with $4.76 a week earlier, according to AAA.
Markets fear higher inflation
Investors also reacted cautiously. S&P 500 futures fell around 0.25%, suggesting US stock markets could open lower. Stock markets in Asia and Europe also declined, as many countries in those regions depend heavily on oil and gas imports from the Middle East. Rising oil prices have also increased concerns about inflation, because expensive energy often raises the cost of transporting goods and running businesses.
Goldman Sachs said higher oil prices could make it harder for the US Federal Reserve to decide when to cut interest rates. David Mericle, Chief US Economist at Goldman Sachs, said several factors could still help reduce inflation later this year, including a possible easing of the conflict, weaker tariff effects and slowing AI-related demand, according to Fortune.
Mericle said these factors could allow the Federal Reserve to keep interest rates unchanged for the rest of the year. However, Mericle warned that if oil prices climb back to $100 per barrel, inflation could rise further and make the Fed’s job much more difficult.
Goldman Sachs estimates that $100 oil could increase monthly core inflation by 3 to 4 basis points in the coming months. Mericle said another major oil supply shock could increase worries that inflation may remain high for longer, according to Fortune. Despite the latest fighting, President Donald Trump said the Strait of Hormuz remains open.
Iran keeps shipping on edge
Iran, however, insists the Strait is closed, creating uncertainty for shipping companies that may now hesitate to enter or leave the Persian Gulf. According to the New York Times, Iran says commercial ships should use Iranian waters when passing through the Strait of Hormuz. Instead, many ships have been travelling closer to Oman’s coastline under US military protection, according to the New York Times.
Iran has objected to ships using the route near Oman, and the commercial vessel attacked over the weekend was sailing in Omani waters. The middle of the Strait of Hormuz, which was widely used before the conflict, is now considered dangerous because of the risk of sea mines allegedly laid by Iran’s military.
Despite the latest price jump, Amena Bakr of Kpler said oil markets have become more used to repeated tensions between the US and Iran. Bakr said oil prices are now more likely to fall if peace talks resume than to rise sharply after every new military strike, according to the New York Times.
Goldman Sachs’ commodity analysts said the current disruption may encourage Middle Eastern countries to build more oil pipelines, reducing dependence on the Strait of Hormuz in the future. Goldman Sachs expects new pipeline projects could protect more than 45% of Persian Gulf oil exports by the end of 2027 and over 60% by the end of 2028 from future disruptions in the Strait of Hormuz, according to Fortune.
