Oil prices surge on Middle East tensions, Brent gains nearly five percent

Oil prices are rising sharply at the start of the week, with gains approaching five percent. The market is reacting to a further escalation of the conflict in the Middle East, where the United States and Iran are fighting for control of the Strait of Hormuz. The strait is crucial for exports of oil and other commodities from countries around the Persian Gulf.

Shortly before 8:00 CEST, the front-month Brent crude futures contract was trading at around 79.60 USD, up 4.7 percent from Friday. US light crude West Texas Intermediate (WTI) was up 4.8 percent at approximately 74.80 USD per barrel. The gains eased slightly later.

The US armed forces carried out another wave of attacks on Iran on Sunday. According to the regional command CENTCOM, they struck dozens of targets in several locations using precision-guided munitions. Iran’s Revolutionary Guards then said they had attacked US military bases in Kuwait and Bahrain.

US President Donald Trump said on Sunday that the Strait of Hormuz was open to commercial shipping. Iran had earlier announced that it had closed the strait after a vessel sailed along an unauthorized route and was hit.

“Hopes for a relatively swift resolution to the clashes may be at risk following the escalation of tensions over the weekend,” analysts at ANZ said.

The conflict in the Middle East escalated on February 28, when the United States and Israel jointly attacked Iran. In retaliation, Iran blocked the Strait of Hormuz and began attacking US military bases in neighboring countries. Before the war broke out, around 20 percent of global oil and liquefied natural gas (LNG) supplies passed through the Strait of Hormuz.

“Although this is a significant price move, the market’s current reaction is more moderate compared with March. At that time, the conflict in the Middle East had a much sharper impact on oil prices, as investors were still weighing the risk of a wider regional confrontation and possible disruption to key export routes. Today, the market is responding sensitively to the latest escalation, but it is also clear that geopolitical risk is no longer seen as being as serious as it was in the spring,” Petr Lajsek, an analyst at Purple Trading, told the Czech News Agency (ČTK).

Brent crude prices reached as high as 120 dollars per barrel at the end of April, but Lajsek does not expect that to happen again now. “I do not expect Brent to return to above 100 dollars per barrel this summer unless Hormuz is completely blockaded for an extended period. The current rise in oil prices reflects increased uncertainty and the return of a risk premium rather than expectations of a lasting collapse in supply,” he added.

However, according to Lajsek, higher oil prices will feed through to fuel prices in the Czech Republic in the coming weeks. “By the end of the month, the average price of both petrol and diesel could exceed 40 Kč per liter. Diesel prices will rise more sharply, as market-driven increases will be compounded by the end of government measures and a renewed increase in excise duty. This should raise the price of a liter of diesel by approximately 2.35 Kč as early as the end of this week,” the analyst forecast.

Oil prices in dollars per barrel (about 159 liters):