Oil surges 3% as fresh Mideast strikes reignite supply fears

A renewed exchange of strikes between US and Iranian forces pushed Brent crude above $97 a barrel Wednesday, reversing the prior session's peace-deal optimism and sending global equities into a risk-off tailspin as traders repriced the probability of sustained supply disruption through the Strait of Hormuz.

"The market is oscillating between ceasefire hopes and escalation reality — each headline rewrites the oil risk premium," said Helima Croft, head of global commodity strategy at RBC Capital Markets. "Until there is a verifiable agreement, every military exchange will be met with a disproportionate price response given how little spare capacity exists to replace Hormuz volumes."

Brent futures gained 3% to $97.29 a barrel, while West Texas Intermediate rose 3.4% to $91.71, erasing Tuesday's declines triggered by reports that a draft peace deal included a return to prewar Strait of Hormuz shipping levels within 30 days. The S&P 500 fell more than 2%, and the 10-year US Treasury yield slipped to 4.48% as investors rotated into government debt. Gold edged higher while the US dollar index strengthened, reflecting a classic flight-to-safety pattern.

The Strait of Hormuz handles about 21% of global oil consumption, and any sustained closure — even partial — could push Brent above $100 for the first time since 2022. Citi said in a note Wednesday that oil markets were finding firmer footing as investors priced out worst-case scenarios, but cautioned that uncertainty over the timing of any deal was keeping central banks on alert. The bank warned that the prolonged run-up in crude prices was beginning to spill into broader inflation pressures through second-round effects, prompting some policymakers to lean more hawkish.

The military escalation

Iran's Revolutionary Guards said Thursday they had targeted a US airbase at around 4:50 a.m. local time, according to the Islamic Republic's semi-official Tasnim news agency, without specifying the location. The announcement came after American forces launched fresh strikes in Iran against a military site believed to threaten US troops and commercial shipping through the Strait of Hormuz, a US official told MS NOW. US forces also intercepted and downed several Iranian drones.

The tit-for-tat exchange follows a period of relative calm after reports earlier this week suggested Washington and Tehran were moving closer toward an agreement. Tuesday's peace-deal headlines had sent Brent tumbling 5.3% to $94.29 and triggered a sharp rally in travel stocks, with United Airlines gaining 7% and Carnival rising 5% on expectations of lower fuel costs. Those gains were largely reversed in Wednesday's session.

What it means for markets

The last time US-Iran tensions escalated to direct military exchanges was in January 2020, when a US drone strike killed General Qassem Soleimani. Brent spiked 4.5% in the immediate aftermath but gave back gains within two weeks as both sides signaled de-escalation. The current episode carries higher stakes because of the Strait of Hormuz dimension — Iran has previously threatened to disrupt the waterway in response to military action, and the channel remains the single most important chokepoint for global oil flows.

For equity investors, the risk is twofold: higher oil prices squeeze corporate margins across airlines, shipping, and consumer discretionary sectors, while the inflation pass-through could delay or reduce the pace of central bank rate cuts. The S&P 500's energy sector was the only positive group in Wednesday's session, gaining about 1.5%, while the broader index posted its worst single-day decline in three weeks.

This article is for informational purposes only and does not constitute investment advice.