Global oil prices climbed on Thursday following threats from Iran to expand the conflict in the Middle East. This escalation has intensified fears of further disruptions to crude supplies and significantly weakened hopes for an agreement that could secure navigation through the vital Strait of Hormuz.
Brent crude futures initially rose over 3% to more than $106 a barrel before paring some gains. By 8:46 a.m. in New York, Brent for November settlement was up 2% at $105.09 a barrel, while West Texas Intermediate (WTI) gained 1.7% to $93.71. The market, described by Emily Ashford, head of energy research at Standard Chartered, as having “very little shock absorbers left,” reacts disproportionately to any credible threat of physical disruption or escalation.
Iran Threatens Broader Escalation
The latest surge in prices came after a senior Iranian military official, cited by Iran’s Fars news agency, stated that Tehran could broaden the ongoing conflict to include the Indian Ocean if attacked. These remarks have further eroded optimism surrounding recent discussions between Iranian and US officials on the sidelines of the UN General Assembly.
Despite US President Donald Trump describing these discussions as “very good,” Iranian officials downplayed any significant diplomatic progress. Iran has previously threatened to escalate attacks against the US, potentially deploying new weapons and targeting additional locations, though the precise scope of any Indian Ocean involvement remains unclear. An earlier incident in March saw Iran target a US-UK military base in the Indian Ocean, though no damage occurred.
Strait of Hormuz Remains Central
Iranian President Masoud Pezeshkian reiterated at the UN that while Tehran is prepared to resume talks to end the nearly seven-month conflict, it would not permit freedom of navigation through the Strait of Hormuz as long as US sanctions and a blockade persist. This stance is critical as crude prices have already risen over 70% this year due to the US-Iran war and the fallout from the Russia-Ukraine conflict, which have severely reduced supplies and damaged infrastructure.
Despite the tensions, Persian Gulf producers have continued shipping crude through Hormuz, with some tankers operating with their transponders switched off to mitigate supply shocks. Saudi Arabia, for instance, saw its crude shipments in September reach their highest levels since the conflict began, increasing exports through Hormuz after attacks disrupted an alternative East-West pipeline to the Red Sea.
Pressure on Fuel Markets Intensifies
The impact of rising crude prices has been particularly severe in fuel markets, adding significant pressure on consumers globally and complicating inflation management efforts for central banks. US retail diesel prices have reached record highs, prompting some lawmakers to advocate for restrictions on fuel exports.
President Trump has encouraged advisors to support an export ban, and Energy Secretary Chris Wright reportedly advised oil industry executives to prepare for such measures. However, a final decision remains pending, with senior Trump aides divided and oil executives warning against potential restrictions. While US diesel futures have eased recently, European prices have climbed amid concerns over reduced American supplies.