Crude oil prices surged more than 3% on Monday as fresh fighting in the Middle East reignited concerns over global energy supplies and dashed hopes of an imminent peace deal between Iran and the United States.
Brent crude rose 3.45% to $96.30 per barrel, while US benchmark WTI crude climbed 3.41% to $93.63 per barrel during trading as of 8:10 am. The sharp rebound erased most of Friday’s losses, when oil prices had fallen on hopes that diplomatic efforts could ease tensions in the region.
The latest rally came after despite an existing truce, prompting to retaliate with missile attacks on . The renewed conflict has once again raised fears that the , one of the world’s most important oil transit routes, could remain disrupted for longer.
Oil markets had been hoping that a ceasefire between Lebanon and Israel would help pave the way for a broader US-Iran peace agreement.
Those hopes have now weakened.
According to reports, over the weekend despite a ceasefire announced on June 3. Iran responded by firing missiles at Israel, increasing concerns that the conflict could spread further across the region.
The development has complicated efforts to reach a peace agreement between Washington and Tehran. Iran has made a ceasefire in Lebanon one of the conditions for any broader deal with the US.
As a result, traders are once again focusing on the biggest risk facing global energy markets: the continued disruption of oil shipments through the Strait of Hormuz.
The Strait of Hormuz is one of the world’s most critical energy chokepoints.
Roughly one-fifth of global oil consumption and a large share of liquefied natural gas exports pass through the narrow waterway connecting the Persian Gulf to international markets.
Since the conflict intensified earlier this year, Iran has continued to block or severely restrict shipping through the route, creating uncertainty over global oil supplies.
Any prolonged disruption can tighten supply, push up prices and increase energy costs for countries that rely heavily on imports.
For India, which imports more than 85% of its requirements, developments in the Strait of Hormuz are closely watched because they directly affect fuel costs, inflation and the country’s import bill.
Under normal circumstances, higher oil production from OPEC+ could help cool prices.
However, analysts believe the latest output increase is unlikely to make much difference.
OPEC+ on Sunday agreed to raise oil production for the fourth time in four months. But several member countries are struggling to increase supply because of the ongoing disruption in the Middle East.
Russia is also facing production challenges due to attacks on energy infrastructure.
Jorge Leon, Head of Geopolitical Analysis at Rystad Energy, told Reuters that the physical impact of the latest OPEC+ decision would be minimal.
“In the current market, the physical impact of such a decision would be close to zero,” Leon told Reuters.
That means the market remains highly dependent on geopolitical developments rather than production announcements.
The next direction for crude oil prices will largely depend on whether tensions in the Middle East escalate further or move back towards diplomacy.
If fighting between Israel, Iran and Hezbollah intensifies and the Strait of Hormuz remains restricted, analysts believe Brent crude could test the $100-per-barrel mark again and potentially move higher.
A prolonged supply disruption would keep traders worried about shortages and push risk premiums higher.
On the other hand, any breakthrough in US-Iran talks or a durable ceasefire between Israel and Lebanon could ease supply concerns and bring prices lower.
For now, however, markets appear to be pricing in a longer period of uncertainty.
Higher crude oil prices are generally bad news for India.
Rising oil prices increase the country’s import bill, put pressure on the rupee and can lead to higher inflation over time.
They also raise costs for sectors such as aviation, logistics, paints, chemicals and manufacturing.
A sustained move towards $100 oil could make it harder for policymakers to manage inflation and could affect economic growth if energy costs remain elevated for a prolonged period.
For now, traders, governments and consumers around the world will be watching one place closely: the Strait of Hormuz, where geopolitical tensions continue to hold the key to the direction of global oil prices.