Oil rises as Middle East tensions escalate, raising fears of broader supply disruptions

Oil prices climbed about 1% on Wednesday, extending their gains after US President Donald Trump reinstated a naval blockade on all Iranian ports, while Iran's Islamic Revolutionary Guard Corps threatened to shut down "all other export routes serving the United States and its allies," intensifying concerns over global energy supplies.

Trading performance

Brent crude futures rose 69 cents, or 0.8%, to $85.42 a barrel, while US West Texas Intermediate (WTI) crude futures gained 73 cents, or 0.9%, to $80.07 a barrel.

Both benchmarks closed about 2% higher on Tuesday, reaching their highest levels in a month as supply disruptions through the Strait of Hormuz worsened. Before the outbreak of the US-Iran conflict, roughly one-fifth of global oil and liquefied natural gas supplies passed through the strategic waterway.

Middle East developments

In a statement carried by Iran's official IRNA news agency, the Islamic Revolutionary Guard Corps said, "Energy exports in the region will either remain available to everyone or to no one."

Analysts believe Tehran is signaling that it could use its Houthi allies in Yemen to disrupt shipping through the Bab el-Mandeb Strait, potentially opening a new front in its confrontation with the United States and threatening two of the world's most critical energy trade routes.

Fighting between the United States and Iran resumed last week, undermining a fragile ceasefire reached in June after months of conflict.

Early Wednesday, the US military announced a new round of strikes aimed at degrading Iran's capabilities used to target commercial shipping in the Strait of Hormuz.

Speaking in an interview with Fox News, President Donald Trump said he would delay targeting Iran's energy facilities but added, "Eventually, we will target the energy facilities."

Giovanni Staunovo, an analyst at UBS, said the US naval blockade on vessels heading to and from Iranian ports is tightening conditions in the oil market, noting that Iran's crude exports have ranged between 1.5 million and 2 million barrels per day over the past two weeks.

Goldman Sachs estimated that Gulf oil exports had recovered to more than 80% of pre-war levels following the US-Iran memorandum of understanding in June, but fell back below 50% over the past week, equivalent to roughly 11 million barrels per day.

The bank said Brent crude could climb above $110 a barrel in the fourth quarter if the recovery in Gulf exports continues to stall.

Despite the escalation, investors remain cautious about pricing in a significant geopolitical risk premium given the rapid shifts in political and military developments.

Ole Hansen, Head of Commodity Strategy at Saxo Bank, said markets have become more restrained in reacting to dramatic headlines because many of them ultimately fail to translate into concrete action.

In the latest military developments, the Iranian military announced early Wednesday that it had launched drone attacks targeting US positions at Jordan's Azraq Air Base. The US Department of Defense did not immediately comment.

Iran's Revolutionary Guard also claimed it had targeted weapons storage facilities and military installations in Bahrain and Kuwait, although Reuters was unable to independently verify those reports.