Oil Prices Climb as Strait of Hormuz Remains Closed After Diplomatic Talks Break Down

Middle East Tensions Escalate as Iran War Enters Ninth Week

Oil prices surged on Monday after efforts to resume peace talks over the Iran war stalled, with the vital Strait of Hormuz remaining effectively closed. The blockade has disrupted global markets, leading to a significant supply shock and concerns about an inflation crisis.

Brent oil rose as much as 2.5% to $107.97 a barrel, while West Texas Intermediate traded near $96. The supply shock has choked off supplies of crude, fuel, natural gas, and even fertilizers, raising concerns about an inflation crisis. A ceasefire has mostly held in place since early April, but the blockade of the Strait of Hormuz by both the US and Iran has made the key energy chokepoint virtually impassable.

Read also: Treasury Yields Experience Largest Increase in Two Weeks Following Release of Labor Market Data

US President Donald Trump canceled a planned trip over the weekend by his top envoys to Pakistan, which is mediating talks, while Iran said it won't negotiate so long as it's being threatened. Iranian President Masoud Pezeshkian stated that his nation won't enter "imposed negotiations under threats or blockade."

The Iran war has driven up energy prices and led to shortages of key products such as liquefied petroleum gas in India, and prompted airlines to cut flights. The International Energy Agency says the conflict is causing the biggest supply shock in history.

The longer Hormuz is closed, the more consumption is going to have to recalibrate lower to align with supply that's dropped. A loss of 1 billion barrels is already all but guaranteed — more than double the emergency inventories that governments released after the conflict with demand destruction likely to spread.

Read also: US-Iran Tensions Spark Uptick in Oil Prices Amid Global Market Decline

US forces intercepted a sanctioned vessel in the Arabian Sea on Saturday as part of the blockade, according to US Central Command. The US deployed a Navy helicopter to intercept the vessel, which subsequently complied with military directions to turn back to Iran under escort. A total of 37 ships have been redirected since the start of the blockade, Centcom said.

Most of Iran's crude is exported to China, with the country's private refiners — known as teapots — taking advantage of the cheaper barrels. On Friday, the US sanctioned Hengli Petrochemical (Dalian) Refinery Co. over its links to Tehran, just weeks ahead of an expected summit between Trump and Chinese President Xi Jinping. Hengli has denied any trade with Iran.