Oil prices hit $96, poised for 7% weekly rise amid US-Iran tensions

Oil prices climbed on Friday, notching their largest weekly gain since mid-July, as escalating conflict between the United States and Iran raised fears of significant supply disruptions from the Middle East. On September 4, Brent crude futures increased by 48 cents, or 0.5 percent, reaching $96 a barrel, while US West Texas Intermediate (WTI) crude futures advanced by 55 cents, or 0.58 percent, to $92 a barrel. For the week, Brent surged over 7 percent, and WTI rose 9.8 percent, with both benchmarks set for their strongest weekly performance since the week ending July 20.

The uptick followed a renewed outbreak of hostilities, triggered by recent US attacks that resulted in the deaths and injuries of dozens, including Iranian civilians. These events mark the most severe confrontations between Washington and Tehran since July, prolonging a conflict that began with joint US-Israeli strikes at the end of February. Entering its seventh month, the conflict continues to heighten risks of interruptions to oil exports from the region, particularly via the Strait of Hormuz - one of the world’s most critical oil transit chokepoints.

Diplomatic tensions remain high, with Israeli Defence Minister Israel Katz reiterating that Israel would take action to incapacitate Iran’s military and civilian infrastructure, including key energy facilities. US Vice President JD Vance declared Thursday that the US will not enter talks with Iran unless Tehran ceases its attacks on commercial vessels in the Strait of Hormuz. Meanwhile, President Donald Trump on Wednesday stated that the renewed US campaign would not be prolonged, adding that American forces had targeted and destroyed Iranian radar and missile systems as well as new equipment along the Strait. Trump described the US strikes as “very heavy” and emphasized that American forces are prepared to mount further attacks if needed.

In response, Iran has widened the list of ships it deems non-compliant, increasing the threat that such vessels could face fines, confiscation, or detention when transiting the Strait of Hormuz. Among foreign vessels, only Iraqi ships remain largely unimpeded by Iranian authorities for transit through the waterway.

Analysts say the duration and scope of these disruptions will be key in determining the future direction of oil prices. According to JPMorgan, each additional month of disrupted shipping could add $7 to $8 per barrel to Brent crude prices. Should the situation persist for a full three months, the bank projects Brent could average $114 a barrel on a monthly basis. Goldman Sachs has warned that in scenarios of prolonged shipping disruptions, Brent could rise to $120 a barrel, though its base case expects some easing of tensions. The bank’s current forecasts put Brent at an average $80 a barrel for the fourth quarter and $75 for next year, but note that risks remain tilted higher if disruptions in the Strait of Hormuz and the Red Sea continue longer than anticipated.

Ponmudi R, CEO of Enrich Money, stressed that crude prices are now closely tied to geopolitical events around the Strait of Hormuz. He noted that any sustained improvement in shipping flows could help lower the geopolitical premium for crude and support emerging market equities, but a renewed disruption would likely reverse those gains.

(Disclaimer: Recommendations and opinions expressed by experts are their own and do not reflect the views of The Economic Times.)