Oil prices had been drifting lower on hopes that tensions between the U.S. and Iran might cool off. That hope evaporated in a hurry.
President Trump said in a Fox News interview that Iran "is going to get a beating" and that the U.S. would be "hitting them hard." Those comments came after Iran's Islamic Revolutionary Guard Corps fired ballistic missiles at American forces. The missiles targeted a Jordanian base housing U.S. troops, as reported by Axios. U.S. Central Command confirmed the missiles were successfully intercepted, but the incident still rattled markets.
Brent crude, a key global oil benchmark, climbed 7.4% to $90.35 per barrel. West Texas Intermediate crude also advanced about 7.4%, reaching $85.11 a barrel. That is a sharp move for a single day, and it erased most of the price drops that had happened during a brief period of quiet.
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This confrontation is not a fresh one. It has been building for five months, starting with a nuclear standoff between the U.S. and Iran. The recent escalation came after a series of attacks by Iran-aligned groups.
In the three days before the U.S. and Saudi Arabia struck "multiple terrorist logistics and weapons sites" in eastern Iraq, Iran-aligned groups launched more than 30 drone attacks. That set the stage for the U.S.-Saudi retaliatory strikes. Yemen's Houthi rebels, backed by Iran, have tried to interfere with shipping in critical sea routes, focusing on the Hormuz Strait and the lower Red Sea - two key chokepoints for oil transit in the region.
This month, Iranian forces have launched multiple assaults on oil tankers traveling through the Strait of Hormuz. Last week, the Houthis announced a maritime embargo against Saudi Arabia and reported striking two tankers in the Red Sea.
The Strait of Hormuz is a vital waterway through which about 20% of the world's oil passes. Any disruption there can cause immediate price spikes. Similarly, the Red Sea route is critical for tankers heading to Europe. The combination of missile threats, naval mines, and drone attacks has made insurers wary and shipping companies reluctant to send vessels through these chokepoints, adding a risk premium to oil prices.
Helima Croft, who leads commodity strategy at RBC Capital Markets, summarized the mood in a note to clients. She said the firm remains "exceedingly skeptical that we are on the brink of a major diplomatic breakthrough that will resolve the nuclear standoff that started the war five months ago or enable the normalization of maritime traffic."
Croft added, "We continue to maintain that the ongoing threat of missiles, mines, drones, and Tehran's toll will keep a significant portion of the shipping market on the sidelines."
*Correction: This article was revised to correct the delivery month for futures.*
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