Hopes for a swift resolution to the conflict in the Middle East faded Monday, pushing the global oil benchmark above $104 a barrel after the White House dismissed Iran’s latest peace offer.
Oil prices climbed more than 2 percent after President Donald Trump rejected Iran’s counter-proposal to end the war, damping expectations for a quick reopening of the critical Strait of Hormuz and renewing fears of a wider conflict.
“We still think that we are moving towards a deal, but both parties want to have an upper hand in negotiations,” Mohit Kumar, chief European economist at Jefferies, wrote in a note. “The longer the Strait of Hormuz remains closed, the more negative it is for the global economy.”
Brent crude futures, the international benchmark, rose 2.9% to $104.2 a barrel. The move followed Trump’s description of Iran’s proposal as “totally unacceptable” on social media. Tehran’s demands reportedly included sovereignty over the Strait of Hormuz and compensation for war damages, according to Iranian state media.
The impasse threatens to prolong the blockade of a waterway that handles about 20 percent of the world’s oil supply, sustaining upward pressure on energy prices that could fuel global inflation. All eyes are now on a planned meeting between Trump and Chinese leader Xi Jinping in Beijing, as Iran has signaled it is ready to support a separate Chinese peace initiative.
Iran’s foreign ministry spokesperson, Esmail Baghaei, defended the country’s proposal as “reasonable and generous,” insisting the demands were for the security of the entire region. The diplomatic back-and-forth comes as tensions remain high on other fronts. In southern Lebanon, an Israeli soldier was killed by an explosive drone, the military said Monday, in an attack claimed by the Iran-backed group Hezbollah.
The continued fighting puts a shaky US-backed ceasefire between Israel and Lebanon under severe pressure. The last major disruption in the Strait of Hormuz, during the Tanker War of the 1980s, saw similar attacks and led to direct US military intervention to protect shipping lanes.
In response to the ongoing maritime risk, Britain and France announced they will host a meeting of defense ministers from over 40 nations on Tuesday to discuss military plans for restoring trade flow. This follows Iran’s warning to both nations against deploying warships in the region.
While the diplomatic path appears blocked, there were minor signs of movement on the ground. Three oil tankers exited the Strait of Hormuz on Sunday after a three-day halt in traffic, according to ship-tracking firm Kpler. However, with crude prices up around 45% since the war began, markets are pricing in a significant risk of continued or escalated conflict.
This article is for informational purposes only and does not constitute investment advice.
