Middle East Tensions Send Crude Oil Prices Soaring
Crude oil prices surged to a three-week high on Tuesday, driven by the weakness of the US dollar and escalating tensions in the Middle East. The September WTI crude oil contract (CLU26) rose 1.42% to $69.12 per barrel, while the September RBOB gasoline contract (RBU26) fell 0.37%. The sharp decline in the dollar index ($DXY) to a two-and-a-half-month low provided support for energy prices.
The Strait of Hormuz remains closed due to ongoing hostilities between the US and Iran, limiting crude supplies from the Middle East. The lack of a clear path to a resolution has kept upward pressure on oil prices. On Monday, the UAE cut all economic ties with Iran after accusing it of firing ballistic missiles at its territory.
US Energy Secretary Chris Wright said that the US is playing the long game with Iran, implying no plans for de-escalation of the conflict. This statement dampened prospects for a swift reopening of the Strait of Hormuz. Israeli attacks on Iran-backed Hezbollah in Lebanon and Hamas in Gaza have also contributed to increased tensions.
However, gains in crude prices are contained as many Gulf countries successfully transit crude shipments through the Strait of Hormuz despite Iranian attacks. The UAE, Qatar, Iraq, and Kuwait have been shipping oil out of the Persian Gulf by turning off their transponders or 'dark' transits.