Key Points:
- Brent crude holds steady above $103 a barrel, while West Texas Intermediate trades near $96.
- Iran confirmed the death of Ali Larijani, its top security chief, increasing regional tension.
- Traffic through the vital Strait of Hormuz remains effectively closed to most oil tankers.
- Analysts expect oil prices to stay in a new higher range between $95 and $110.
Global oil markets remained on high alert this Wednesday as the conflict in the Middle East deepened. Oil prices held onto their recent gains after Iranian state media confirmed the death of a major political figure. Ali Larijani, the secretary of the Supreme National Security Council and a key pillar of Iran’s wartime leadership, was killed.
The news immediately sent ripples through the energy sector. Brent crude, the global benchmark, traded above $103 a barrel after jumping more than 3.0% on Tuesday. Meanwhile, the US benchmark, West Texas Intermediate, hovered near $96 a barrel. Traders fear this high-profile death will only pour more gasoline on an already raging fire.
Aaron Stein, president of the Foreign Policy Research Institute, highlighted the danger of the situation. He noted that the killing of Larijani is a massive deal that might make Iran even more desperate to disrupt global oil flows. He also pointed out that President Donald Trump is facing intense pressure to have the military escort commercial tankers through the region. This scenario creates the terrifying possibility of very tense US naval operations right in the middle of a war zone.
President Trump spent the last few days trying to restart trade flows through the Strait of Hormuz. This narrow waterway normally carries about 20% of the world’s daily oil supply. The US leader initially pressed international allies to send their own warships to help reopen the vital artery. However, he quickly ditched his public appeal after receiving zero support from other nations.
The financial impact of this conflict is staggering. Brent crude has skyrocketed almost 70.0% so far this year. The vast majority of that massive surge happened immediately after the initial US and Israeli military attacks against Iran late last month. In retaliation, Tehran began striking regional energy assets, effectively choking off all commercial tanker traffic.
Everyday, consumers are already feeling the intense pain of this geopolitical crisis. In the United States, diesel costs topped $5.00 a gallon at the pump this week. This sudden, violent surge in energy prices spawns fresh concerns about faster, uncontrollable inflation spreading across the globe. Central bankers around the world are watching these numbers closely as they try to steer their monetary policies. US Federal Reserve officials are currently gathering to set interest rates, although financial markets expect them to announce no change today.
The physical war also intensified this week. Iran stepped up its missile attacks across the region, focusing a heavy assault on Saudi Arabia. These specific strikes concentrated on the kingdom’s eastern province, which is home to major Saudi oil infrastructure. At the same time, the US military announced it used heavy penetrator munitions to destroy Iranian anti-ship cruise missile sites located dangerously close to the Strait of Hormuz.
The entire oil market remains firmly focused on this specific chokepoint. For all practical purposes, the strait is completely closed. Traffic conditions currently depend entirely on political calculations. Experts believe Iran will likely allow only a tiny handful of friendly vessels to transit based on their specific political affiliations while aggressively deterring or blocking almost everyone else.
Robert Rennie, head of commodity research at Westpac Banking Corp, offered a grim outlook. He stated that with no end in sight to the hostilities, oil production shut-ins rising daily, and the strait technically closed, Brent crude is locked into a new, much higher trading range between $95 and $110. He also offered a stark warning. If a major regional refinery gets hit, or if intelligence confirms that Iran laid additional explosive mines in the strait, the market should expect that price range to extend higher by another $10 to $20 immediately.
In a rare bit of positive supply news elsewhere, Iraq recently reached a crucial agreement with Kurdistan. The two sides agreed to resume oil exports through a major pipeline located in the semi-autonomous region. This deal provides a much-needed boost for OPEC’s second-largest producer, especially after the closure of the Strait of Hormuz forced severe output cuts across the rest of the country.
