The flare-up over the last few days has heightened doubts that a memorandum of understanding signed last month would lead to a permanent halt to the war, which has engulfed Iran's neighbors.
“The chances of oil moving back toward $100 in the reasonably near term are still meaningful if hostilities intensify which damages energy infrastructure around the Gulf,” Tim Waterer, chief market analyst at KCM Trade said, noting Brent prices could remain at $75-$80 a barrel if diplomatic efforts helped reopen the strait.
“For now, the risk premium is still embedded, but it’s not a one-way bet given that there remain incentives for both sides to find a diplomatic solution.”
Trump and Iran signal further escalation
"I'll save the energy targets for last, but ultimately we'll hit energy targets," Trump told Fox News in an interview aired Tuesday night on "Special Report with Bret Baier".
Iran's army said early on Wednesday that it had launched drone attacks against U.S. positions at Jordan's Azraq base. There was no immediate comment from the Pentagon.
Iran's Islamic Revolutionary Guard Corps said they targeted weapons and storage facilities in Bahrain and Kuwait. Reuters could not immediately verify the reports.
Supply disruption deepens in the Strait of Hormuz
Oil prices closed up 2% to a one-month high on Tuesday as attacks deepened a supply disruption in the Strait of Hormuz, where some one-fifth of the world’s oil and liquefied natural gas transited prior to the beginning of the war.
Early on Wednesday, the U.S. also began a fresh round of strikes "to continue degrading Iranian capabilities used to attack commercial shipping in the Strait of Hormuz," the U.S. military said.
Tehran says it has again closed the strait after hostilities between Iran and the U.S. reignited last week, fraying an already fragile truce reached in June after several months of fighting.
Oil prices extend gains on renewed US-Iran tensions
Oil rose on Wednesday as President Donald Trump reimposed a naval blockade on all Iranian ports and Iran launched retaliatory strikes on U.S. infrastructure in the region.
For the second straight session, Brent closed at its highest since June 12 and West Texas Intermediate at its highest since June 15 and rose further on early Wednesday trade.
Brent LOCc1 rose $1.46, or 1.72%, to $86.19 a barrel by 0029 GMT while WTI CLc1 was up $1.11, or 1.4%, to $80.40 a barrel.
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