Oil prices were little changed on Wednesday as US forces continued a fresh wave of military strikes against Iranian targets while Washington reinstated a naval blockade on Iranian ports near the Strait of Hormuz.

US West Texas Intermediate (WTI) crude futures for August delivery slipped 10 cents, or 0.1%, to $79.24 per barrel.

Global benchmark Brent crude futures for September delivery fell 13 cents to $84.60 per barrel.

Escalating tensions near the Strait of Hormuz fuel supply concerns and raise the prospect of $100 oil

In a statement released late Tuesday US time, US Central Command (CENTCOM) said it had carried out a new wave of strikes targeting dozens of military assets near the Strait of Hormuz and along Iran's coastline in an operation that lasted seven hours.

The command said the attacks involved fighter jets, drones, and naval vessels targeting missile and drone facilities, naval assets, and coastal defense systems in an effort to weaken Iran's ability to threaten commercial shipping.

The operation came just hours after US forces resumed enforcing a naval blockade on vessels traveling to and from Iranian ports.

In a subsequent post on social media, CENTCOM Commander Gen. Brad Cooper said Iran had "deliberately" targeted civilians and attacked seven commercial vessels over the past week, resulting in around 12 crew members being killed, injured, or reported missing.

Saul Kavonic, Head of Energy Research at MST Marquee, said the latest escalation confirms that expectations for a rapid reopening of the Strait of Hormuz were premature.

"The renewed fighting and the reinstated naval blockade have pushed the conflict back onto an escalatory path," he said in comments to CNBC via email.

He added that oil prices could retest the $100-per-barrel level if the current level of military activity continues for several weeks and could move even higher if attacks expand to include energy infrastructure across the region.

The ceasefire between the United States and Iran, which was intended to ensure the permanent reopening of the Strait of Hormuz, has begun to fall apart.

US forces reinstated a naval blockade on Iranian ports this week and struck dozens of targets along Iran's coastline, while Tehran responded by attacking oil tankers attempting to pass through the strait without its approval.

Brent crude, which had fallen to the mid-$70s per barrel while the June peace agreement was in effect, climbed back above $85 following the latest developments, reaching its highest level since the ceasefire was signed.

This is the second time this year that markets have been forced to price in the possibility of a complete halt to roughly one-fifth of the world's seaborne oil trade.

During the first episode in February, some analysts warned that oil prices could reach $200 a barrel, but those forecasts never materialized. Much of the reason lies not in developments in the Gulf, but in the measures Beijing had already put in place. Those same defenses are now being tested again.

Five layers of protection built by Beijing against oil shocks

First: Consumers are replacing private cars with taxis

In China's largest cities, taking a taxi or using a ride-hailing service is often cheaper than driving a private vehicle, even as gasoline prices continue to rise week after week.

China recorded 3.05 billion taxi and ride-hailing trips in May, up 6% from a year earlier, although the increase was not directly caused by the war.

A weak labor market pushed large numbers of new drivers into ride-hailing work to supplement their incomes, while the widespread availability of low-cost electric vehicles made it easier to enter the sector. As a result, ride fares continued to decline even as fuel costs rose for private motorists.

A part-time driver in Beijing identified only by his surname, Li, told Reuters that his fares had fallen by between 10% and 15% since he began working six months ago.

"Competition is intense," he said.

Meanwhile, a 45-year-old gasoline-car owner identified by her surname, Yang, said she increasingly prefers taxis when fuel prices rise because they allow her to avoid the inconvenience of finding parking and the cost of filling her tank.

The impact of this trend is amplified by the fact that much of China's taxi fleet is already electric.

About half of the country's 1.3 million taxis are battery-powered, while the share approaches 100% in the largest Chinese cities.

The number of non-fossil-fuel vehicles operating on Didi's platform, including electric and hybrid cars, rose to 8 million last year and accounted for three-quarters of all distance traveled through the app.

As a result, China's gasoline consumption fell 10% year-over-year in May, while diesel demand declined 14%, even as road freight traffic rose 2% and traffic volumes reached record levels during the May holiday.

Dazong Liu of the Institute for Transportation and Development Policy said demand for mobility is still rising, but is gradually shifting from private cars toward taxis and metro systems.

Second: A massive oil stockpile bought China valuable time

China's largest and most deliberate move began long before the fighting erupted.

For more than a year, Chinese refiners purchased more crude oil than they immediately needed, taking advantage of stable prices and deep discounts on sanctioned Russian and Iranian barrels avoided by most other buyers.

No precise official figures are available outside Beijing, but analysts estimated that China had accumulated around 1 billion barrels in commercial and strategic reserves by the time the war began in February.

China then began drawing down those stockpiles.

Crude oil imports fell from 11.39 million barrels per day in February to 6.36 million barrels per day in May, a decline of more than 44%, while refineries continued operating at near-normal rates.

The entire gap was covered by inventories, with the International Energy Agency estimating that China withdrew 41 million barrels from storage in June alone.

Yaniv Shah of Rystad Energy told CNN that the stockpiling had initially placed a "floor under prices," but later became a genuine buffer against the supply shock after the war began.

The question is whether China can repeat that performance.

Inventories that have already been consumed do not replenish themselves, while JPMorgan analysts are debating whether the drop in Chinese demand is temporary or reflects a lasting change in the country's oil needs.

Third: Pipelines beyond the reach of the conflict

Two decades of investment in pipelines through Russia and Central Asia have reduced China's dependence on the Strait of Hormuz.

According to Rush Doshi, Director of the China Strategy Initiative at the Council on Foreign Relations, the strait now carries only 40% to 50% of China's seaborne oil imports.

He said Beijing has "used the past 20 years to reduce part of its dependence on seaborne oil."

Oil delivered through overland pipelines cannot be intercepted by Iran's Revolutionary Guard, does not require war-risk insurance, and is not exposed to naval mines.

The same logic applies to Russian gas transported through the Power of Siberia pipeline, although capacity is not unlimited.

The pipelines are already operating close to full capacity, while Russia lacks enough tankers to compensate for any major shortfall through maritime shipments.

OCBC analysts said in March that this diversification makes China less vulnerable than its Asian neighbors to a prolonged closure of the Strait of Hormuz, a claim now undergoing another real-world test as military exchanges continue.

Fourth: China is in no hurry to buy Iranian oil

In practice, Iranian tankers are now the only vessels still guaranteed passage through the Strait of Hormuz, and most of that oil is headed to China, which purchases around 90% of Iran's crude exports.

Even so, Chinese refiners do not appear desperate for those cargoes.

When Iranian shipments accumulated during the brief ceasefire, Chinese buyers chose to stay away rather than compete for them.

Private refiner Shenghong Petrochemical, for example, purchased around 12 million barrels of Iraqi, Emirati, and Saudi crude for July delivery after Gulf producers lowered prices to attract buyers.

China's Iranian crude imports are expected to fall to around 556,000 barrels per day in July, the lowest level since early 2023, while between 30 million and 34.5 million barrels of Iranian oil remain stored aboard floating tankers without buyers.

Natasha Kaneva, an analyst at JPMorgan, wrote in a client note this month that barrels leaving the Strait of Hormuz are "increasingly finding no destination other than China, but China is not buying."

When the world's largest crude importer can afford to be this selective, it is not simply accepting the market price. It is helping to set it.

Fifth: The wider transition is already underway

New-energy vehicles now account for one out of every two new cars sold in China.

Exports of clean technologies, including solar panels, batteries, and electric vehicles, also reached a record in March, just as fighting in Iran began.

Beijing aims to raise the share of non-fossil energy to 25% of total energy consumption by 2030, up from around 22% last year, regardless of whether the war continues.

JPMorgan analysts said earlier this month that the conflict may simply have accelerated behavioral changes that were already underway, making China's dependence on oil weaker than markets had assumed.

The key question is whether that trend will continue through another round of military strikes and naval blockades, which is now the main issue investors are watching after the latest rise in oil prices.

Daan Struyven of Goldman Sachs has raised the possibility that a meaningful share of the decline in China's oil imports, perhaps around one-tenth of the drop, may never return, regardless of whether another ceasefire is reached.

If that proves correct, China, which has quietly built five layers of protection over many years, may ultimately need less of the world's oil than previously expected, not just temporarily, but permanently.

Aluminum futures rose 0.40% to settle at 339.80 Indian rupees (about $3.57), supported by supply concerns and continued declines in inventories across the world's major metals exchanges.

Aluminum inventories in London Metal Exchange (LME) warehouses remained at their lowest level since 2022, while stocks registered with the Shanghai Futures Exchange (SHFE) fell 4.8%, reflecting continued strength in physical demand for the metal.

Geopolitical tensions support prices despite improving supply outlook

Prices found additional support after renewed geopolitical tensions following fresh US strikes on Iranian targets, which heightened concerns over disruptions to shipments passing through the Strait of Hormuz, one of the most important export routes for aluminum from the Gulf region.

However, expectations for improving regional supply conditions and easing tensions in the Middle East limited further gains.

On the production front, Emirates Global Aluminium (EGA) announced the restart of operations at its Al Taweelah alumina refinery after a shutdown that lasted around three and a half months.

The company expects the refinery to reach 50% of its operating capacity within days before returning to full technical capacity by the end of the year, a development that is expected to gradually increase global alumina supply.

Asian demand remains resilient

Demand indicators across Asia continued to point to solid consumption after Japanese buyers agreed to pay a premium of $395 per metric ton for aluminum shipments scheduled for delivery between July and September, signaling sustained regional demand.

Meanwhile, data from the International Aluminium Institute (IAI) showed that global primary aluminum production declined 1.7% year-over-year in May.

In contrast, China's aluminum output increased 1.7%, while exports also rose, supported by stronger prices in overseas markets.

Market outlook

Morgan Stanley expects the global aluminum market deficit to narrow during 2026 before shifting into surplus in 2027.

The bank added that demand driven by the continued expansion of data center construction is expected to remain one of the key drivers of aluminum consumption over the medium term.

Technical analysis

From a technical perspective, analysts said the market is witnessing short covering, with 338.5 Indian rupees (about $3.56) identified as a key support level, while the nearest resistance stands at 341.3 Indian rupees (about $3.59).

The Bank of Canada left its key overnight interest rate unchanged at 2.25% on Wednesday, in line with market expectations, while signaling that the Canadian economy is likely to regain momentum during the second half of the year as inflationary pressures ease.

The decision marked the sixth consecutive meeting in which the central bank kept interest rates unchanged, following an aggressive easing cycle last year that brought the policy rate down to its current level in October.

"The Canadian economy is showing signs of improvement, with growth gradually accelerating, while inflationary pressures are expected to ease following the recent increase," the bank said in its statement.

In its latest economic projections, the Bank of Canada slightly raised its growth forecasts for 2027 and 2028 but lowered its estimate for 2026 growth to 0.7%, compared with 1.2% in its April outlook, reflecting a weaker-than-expected start to the year.

Meanwhile, the bank raised its 2026 inflation forecast to 2.5% from 2.3%, while stressing that inflation is expected to remain close to the midpoint of its 1%-3% target range over the next two years.

Economic activity expected to improve despite persistent risks

The bank expects the Canadian economy to expand at an annualized rate of 2.5% in the second quarter after stagnating during the first three months of the year due to disruptions caused by tensions in the Middle East and uncertainty surrounding US trade policy.

"The data we have received since April have strengthened our confidence that the economy is successfully moving through this period of global disruption," Bank of Canada Governor Tiff Macklem said in prepared remarks for his press conference.

All 36 economists surveyed by Reuters had expected the central bank to leave interest rates unchanged, while most anticipated no change in monetary policy until at least July next year.

Money market pricing also indicates that investors expect interest rates to remain unchanged through the end of this year.

In its quarterly Monetary Policy Report, the bank said developments in Canada-US trade relations and the war in the Middle East remain the two largest sources of risk to its inflation outlook.

Macklem said the bank looks through the direct impact of higher oil prices on inflation but warned that if prices remain elevated for a prolonged period, inflationary pressures could spread to other goods and services.

"As we have emphasized before, we will not allow higher oil prices to turn into persistent inflation," he said.

Following the decision, the Canadian dollar pared its earlier gains and weakened 0.05% to C$1.4062 per US dollar, equivalent to 71.11 US cents. The yield on Canada's two-year government bond fell 3 basis points to 2.627%.