Oil surges past $86 on US-Iran strikes, Hormuz closure risk rises
Crude oil prices surged above $86 a barrel after fresh US strikes on Iranian military capabilities disrupted commercial shipping through the Strait of Hormuz, rebuilding a risk premium that could push prices significantly higher if diplomatic efforts fail.
Brent crude rose $1.46, or 1.72%, to $86.19 a barrel in early Wednesday trade, extending a rally to its highest level since June 12. West Texas Intermediate gained $1.11, or 1.4%, to $80.40, hitting its strongest mark since mid-June. The benchmarks surged roughly 2% on Tuesday, driven by renewed disruptions to a critical maritime chokepoint.
The US military launched another round of strikes early Wednesday, specifically targeting Iranian military assets used to attack commercial shipping in the Strait of Hormuz. Tehran countered by claiming it had once again shut the waterway to traffic. This exchange effectively shattered a fragile truce brokered in June after months of prior conflict.
The prospect of direct attacks on energy infrastructure is now firmly on the table. "I'll save the energy targets for last, but ultimately we'll hit energy targets," US President Donald Trump said in a Fox News interview aired Tuesday night. The remark signaled a potential escalation that traders are immediately pricing into crude contracts.
Anindya Banerjee, head of commodity and currency research at Kotak Securities, argued that the market is reacting more to the breakdown in diplomatic momentum than to the military strikes in isolation. Tehran has reportedly attached new conditions to any negotiations, further delaying the restoration of normal tanker traffic. Even before this week's escalation, shipping volumes through the strait were running well below pre-war levels.
This dynamic has rebuilt the geopolitical risk premium in crude markets. Banerjee noted that Brent is now testing the upper boundary of his firm's base-case range of $70 to $80 per barrel. Should the conflict persist and shipping bottlenecks tighten further, he expects prices could climb to the $85 to $90 range.
Tail risks and market restraints
A total closure of the strait remains an outlier scenario, but the consequences for global energy markets would be severe. Nuvama Institutional Equities estimates that an extended shutdown could sever nearly 20 million barrels per day of crude supply, triggering a price surge to between $110 and $150 per barrel.
Such an extreme outcome is currently tempered by competing political and economic incentives. Banerjee pointed out that Washington prefers lower oil prices ahead of US midterm elections, while Iran still requires sanctions relief. Furthermore, Qatar is actively mediating between the parties. Still, as long as normal shipping through the Strait of Hormuz remains suspended, the bias for crude prices remains decisively upward.
