Oil Prices Extend Gains Amid Renewed US-Iran Tensions and Strait of Hormuz Risks

Oil prices pushed higher following the largest single-day gain in three weeks, driven by renewed hostilities between the United States and Iran. The recent exchange of fire has raised concerns about prolonged disruptions to energy flows through the Strait of Hormuz.

West Texas Intermediate traded above $86 after advancing 2.8 per cent in the previous session, while Brent settled near $90. The latest developments followed a US strike on an island in Hormuz, which was met with Iranian retaliatory attacks targeting the United Arab Emirates and Jordan. This marks the first exchange of fire between the two sides in about a month.

Crude recorded a marginal increase in August after a volatile trading period. Prices have been heavily influenced by stop-start efforts to end the conflict, alongside US pledges to impact Iran's economy. President Donald Trump addressed concerns regarding American firepower, characterising the conflict as a 'little war.' Meanwhile, Iran targeted American air bases in Jordan, though local media reports indicated that the missiles were intercepted and destroyed before causing any damage. President Trump stated that the US would respond to attacks on American forces, pointing to a potential cycle of military escalation.

Market analysts note that traders reduced net crude oil positioning over the week due to persistent uncertainty surrounding the conflict. Expectations remain that crude prices will trend higher in the absence of signs that normal transit through the Strait of Hormuz will resume in the near term. Several current and former US and Iranian officials have indicated they expect the conflict to continue for months.

Geopolitical tensions in West Asia, alongside the ongoing war between Russia and Ukraine, have caused refined-product prices to rally even more sharply than crude as supplies tighten, particularly for diesel. Despite the risks, crude exports continue to move through the Strait of Hormuz, often utilizing tankers with transponders switched off to avoid detection. Major Persian Gulf producers, including the UAE, Saudi Arabia, Kuwait, and Iraq, are continuing to dispatch barrels.

However, vessels transiting the waterway face a constant threat of attack. The UK Maritime Trade Operations reported that a tanker was struck by three unidentified projectiles while moving outbound through Hormuz near Oman, highlighting the ongoing risks to regional shipping.

On the supply side, Abu Dhabi National Oil Co. has successfully restored its Ruwais refinery to full capacity following earlier war-related damage. As one of the world's largest facilities, the refinery has operated at its full potential for about a month, providing a boost to exports of diesel and jet fuel.

"Geopolitical conflicts in key energy corridors like the Strait of Hormuz directly impact global supply chains, driving up freight risks and commodity prices such as diesel and crude. For businesses and startups reliant on logistics, manufacturing, and transportation, these macro-level energy shocks translate into higher operational costs. Entrepreneurs must factor in commodity price volatility and supply chain vulnerabilities when planning their financial projections and working capital requirements during periods of international uncertainty." — Dr. Shishir Gupta, Founder & CEO, StartupLanes