Iranian 'Surprise Attack' Sparks 5% Oil Price Surge as Strait of Hormuz Tensions Escalate

Oil prices surged 5% on July 29 as tensions in the Middle East escalated following reports of an Iranian 'surprise attack' on US forces. The increase marked a reversal of three straight days of losses, with Brent crude rising to around $88 a barrel and US West Texas Intermediate (WTI) crude advancing 0.47% to $83.

The disruption has put the Strait of Hormuz at the center of investor attention, with any potential disruptions to oil supplies threatening to add to inflationary pressures ahead of the Federal Reserve's rate decision on Wednesday.

Goldman Sachs estimates that Brent prices could climb to $120 a barrel if shipping disruptions through the Strait of Hormuz persist. JPMorgan predicts that every additional month of supply disruption could add around $7 to $8 a barrel to Brent prices, potentially pushing monthly average Brent prices to about $114 a barrel.

Anindya Banerjee, Head of Commodity Research at Kotak Securities, warned that any strike on major Gulf export infrastructure could force a retest of $95-100 and beyond. He noted that the market has shifted its focus from the military action itself to the declining chances of a diplomatic breakthrough.