Crude Jumps as Hormuz Tensions Rise

Oil jumped amid fresh signs of escalation in the Iran war, dimming prospects for an imminent resumption of flows through the Strait of Hormuz.

West Texas Intermediate futures rose 3.1% to settle near $96 a barrel in New York, after earlier rising by as much as 5.8%. Brent settled above $105 a barrel. Prices jumped late in the session after a day of mostly choppy trading amid new concerns that peace talks have stalled, rhetoric is amping up, and military threats are increasing, injecting geopolitical premium into prices.

Iranian media reported that air defense systems were activated in parts of Tehran to counter "hostile targets," without specifying what those targets were. Investors have been on edge over the prospect of energy infrastructure in the region coming under fire again following comments from Israel on Thursday that it is poised to resume attacks.

Shipowners are facing mounting evidence that it is unsafe to transit the key waterway, despite Washington's assurances to the contrary, with both the US and Iran blocking the strait.

The war has rattled energy markets since it started at the end of February, with the near-closure of Hormuz causing a sharp drop in flows from major oil and gas producers in the Persian Gulf.

Prices rose earlier in the session after Trump said in a social media post that he had ordered the US Navy to "shoot and kill" boats laying mines in the strait, through which about a fifth of global energy typically transits.

"The ceasefire could be unravelling," said Mona Yacoubian, director of the Middle East Program at the Center for Strategic and International Studies. "Ships are being boarded. The Iranians are thumbing their nose at the US, which has expanded the zone of activity well beyond waters in the Middle East. The naval activity is concrete escalation."

The extent to which the strait has been mined — and how long it will take to clear any potential mines — remains an open question for those considering transit. The increased risk for voyages is keeping oil traders on edge as the world is rapidly losing supplies every day that the conflict drags on.

Tensions in the waterway have been simmering for days. US forces boarded a sanctioned supertanker carrying oil from Iran in the Indian Ocean on Thursday, after intercepting two Iranian oil tankers that tried to evade an American blockade earlier in the week.

On Wednesday, Tehran demonstrated its grip over the vital Hormuz chokepoint, attacking vessels and diverting two of them into its waters.

Tehran noted it will not take part in negotiations while a US naval blockade on its ports is in place, and Iran state TV cited the foreign ministry as saying its armed forces are ready to respond to further threats.

"As long as flows through the Strait remain restricted, the market keeps tightening and oil inventories keep falling, oil prices will remain supported," said Giovanni Staunovo, an analyst at UBS Group AG in Zurich.

Efforts to revive talks between Washington and Tehran remain deadlocked on several other key issues, including the Islamic Republic's nuclear capabilities and Israel's invasion of Lebanon. Iranian President Masoud Pezeshkian said in a post that while he welcomes talks, the "blockade and threats are main obstacles" to diplomacy.

Oil Prices

• WTI for June settled up 3.1% at $95.85 a barrel in New York.
• Brent for June settled 3.1% higher at $105.07 a barrel.