U.S.-Iran Tensions Send Oil Prices Soaring on Blockade Threat

Oil prices are on track for weekly gains after the United States threatened an indefinite naval blockade of Iran, raising concerns about disruptions to crude supplies from the Middle East. Brent futures rose by 25 US cents (0.29%) to US$87.32 a barrel at 8:05 a.m. ET, while U.S. West Texas Intermediate crude futures increased by 49 US cents (0.6%) to US$81.74 a barrel.

Higher oil prices are a natural result of the latest approach by the U.S., which implies little hope of a near-term resolution in the Middle East, according to Bjarne Schieldrop at SEB Research. The U.S. said it could maintain a naval blockade of Iran indefinitely and increase economic pressure on Tehran as ceasefire talks have stalled.

According to Treasury Secretary Scott Bessent, more measures will be applied next week that have never been seen in the history of economic isolation of a country. As both the U.S. and Iran made claims over control of the Strait of Hormuz, shipping traffic through the channel fell below its month's average.

Before the U.S.-Israeli attacks on Iran began at the end of February, the strait handled about one-fifth of global daily oil and liquefied natural gas supplies. Two vessels from Abu Dhabi National Oil Company were attacked while transiting the strait on Thursday, an incident condemned by the UAE government as an Iranian attack.

While Middle Eastern supplies are constrained, forecasts from OPEC pointed to weaker demand growth, and U.S. crude inventories posted their largest weekly increase in more than 3-1/2 years. Norbert Rucker, head of economics and next generation research at Julius Baer, said that storage is holding up much better than feared, which should pull oil prices lower.