Oil Prices Slip After Strong Rally as Markets Assess Risks From U.S.-Iran Escalation and Supply Thre

BY COMFORT OGBONNA

Oil prices moved lower on Thursday as traders took profits following a strong weekly rally while closely monitoring the potential impact of renewed military tensions between the United States and Iran. Although crude prices eased, concerns remained high that escalating conflict could disrupt global energy supplies, particularly through the strategically important Strait of Hormuz.

The decline came after a fresh wave of U.S. military action against Iran increased fears of a broader confrontation. Washington carried out strikes on Iranian coastal defense systems and missile facilities on Wednesday after restoring a naval blockade on Iranian ports. Tehran responded by warning that it could restrict regional energy exports, saying it was facing an “existential war” with the United States.

Brent crude futures initially extended gains for a fourth consecutive session before falling 44 cents, or 0.52%, to $84.51 a barrel by 0605 GMT. U.S. West Texas Intermediate (WTI) crude declined 23 cents, or 0.29%, to $79.37 a barrel.

Despite the losses, both benchmarks remained near their highest levels in about a month. Brent crude had earlier gained nearly $1 during the session, reflecting continued concerns over possible disruptions to oil shipments from the Middle East.

“Geopolitical risks remain firmly supportive for oil, but after a strong rally, traders are adopting a wait-and-watch approach,” said Priyanka Sachdeva, senior market analyst at Phillip Nova. She added that investors were shifting their attention from the immediate threat of conflict toward whether there would be actual disruptions to oil flows and how Washington and Tehran respond in the coming days.

Oil prices have climbed significantly this week as fighting has intensified around the Strait of Hormuz, one of the world’s most important energy routes. Before the latest escalation, the waterway handled roughly one-fifth of global oil and liquefied natural gas shipments, making any disruption there a major concern for global markets.

Early signs of reduced shipping activity have already emerged. The number of vessels passing through the Strait of Hormuz dropped on Wednesday, the first day after the United States reinstated its naval blockade of Iran. Only seven vessels crossed the route that day, compared with 13 the previous day, highlighting growing caution among shipping operators.

The latest confrontation follows renewed hostilities between Iran and the United States that began last week, threatening to undermine an already fragile ceasefire agreement reached in June after months of fighting.

Market analysts said oil prices could rise further if the conflict spreads or threatens additional energy routes. Hiroyuki Kikukawa, chief strategist at Nissan Securities Investment, said WTI crude could potentially climb to $85 to $87 per barrel depending on how the situation develops.

Investors are also watching the possibility that Iran could expand the conflict beyond the Gulf region. Analysts have warned that Tehran may use its allies in Yemen, including the Houthi movement, to target shipping routes around the Bab el-Mandeb Strait, another critical energy passage connecting the Red Sea and the Gulf of Aden.

Any disruption in both the Strait of Hormuz and Bab el-Mandeb would create significant risks for global oil markets by threatening two of the world’s most important energy transportation routes.

Reports that U.S. officials believe recent strikes could lead to more complex military operations against Iran have added further uncertainty among traders, increasing concerns that the conflict could escalate rather than stabilize.

Financial institutions have issued varying forecasts for oil prices depending on how the geopolitical situation unfolds. Goldman Sachs said Brent crude could rise above $110 a barrel in the fourth quarter if disruptions in Gulf oil exports continue and production recovery slows. However, the bank said prices could fall toward the $60 range by the end of the year if tensions ease and supply returns more quickly than expected.

Analysts at ING also warned that renewed supply disruptions could have a greater impact because they are occurring at a time when global oil inventories have already declined significantly.

U.S. commercial crude inventories are currently at their lowest levels since 2022 and the weakest seasonal levels since 2018, increasing market sensitivity to any unexpected reduction in supply.

“The concern is that renewed oil supply disruptions come amid the large inventory drawdowns through the second quarter, leaving the market more vulnerable,” ING analysts said.

For now, traders remain focused on developments between Washington and Tehran, shipping activity through key waterways, and whether the latest military escalation results in actual interruptions to global energy supplies. While profit-taking pushed prices lower, the risk of a wider conflict continues to provide strong support for crude markets.