US-Iran Tensions Fuel Surge in Crude Oil Prices Amid 5% Increase

Global Energy Supply at Risk as US-Iran Standoff Continues

May 4, 2024

Crude oil prices surged on Monday, snapping a two-day losing streak, after reports emerged of a tanker being hit by unknown projectiles in the Strait of Hormuz. The incident came shortly after the United States stated its readiness to "guide" commercial ships through the key waterway.

The US warship, attempting to pass through the Strait of Hormuz, was reportedly turned back after allegedly ignoring Iran's warning. Two missiles allegedly struck the ship when it was sailing near Jask. However, the claim could not be independently verified.

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US Crude Prices Rebound

Benchmark US crude prices rebounded by as much as $8.3 per barrel from the day's low to climb back above the $107-a-barrel mark. Brent crude, the international benchmark, gained 5.5% from its previous close to hit the day's high of $114.19 per barrel.

US President Donald Trump promised that the United States would "guide" ships out of the strait, warning that Iranian efforts to block them "will, unfortunately, have to be dealt with forcefully." Trump described part of what he called "Project Freedom" in humanitarian terms, saying the move was designed to aid stranded seafarers, many aboard oil tankers and cargo ships, who have remained stuck in the Persian Gulf since the war began.

Iran's Response

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Iran's state-run IRNA news agency dismissed Trump's "Project Freedom" as part of his "delirium," while Iran's military command said on Monday that all ships passing through the strategic waterway must coordinate with its forces. Iran also warned that it would target any US forces entering the narrow strait and cautioned commercial vessels and oil tankers against moving without coordination with its military.

US-Iran Standoff Prolongs Disruption

Tensions in the Middle East have resurfaced even as the ceasefire in the region continues to hold. Both the United States and Iran have failed to agree to each other's terms, keeping the Strait of Hormuz effectively closed and disrupting crude supply flows, with the pain largely being felt by Asian countries that depend heavily on the Middle East for oil supplies.

The hopes of de-escalation in the region during the first half of April have quickly faded, as expectations that the two sides would reach an agreement to reopen the strait have failed to materialise. Meanwhile, continued attacks on commercial ships have kept maritime traffic near a standstill. Both Iran and the United States have signalled that they are waiting for the other side to make the first move before agreeing to ease restrictions on shipping traffic. Last week, US President Donald Trump reaffirmed that Washington would maintain its naval blockade of Iranian ports to intensify economic pressure on Tehran.