Oil prices surge to record high after Iran attacks tankers near Strait of Hormuz

Oil markets experienced their sharpest price increase in nearly two months after a series of attacks on fossil fuel tankers near the Strait of Hormuz led Donald Trump to announce that the ceasefire deal with Iran was “over”.

Brent crude, the global benchmark, rose by 5% on Wednesday to more than $78 a barrel, the highest price since the US and Iran agreed to a ceasefire while negotiating an end to the war last month.

The fragile ceasefire appeared to disintegrate after Iran launched attacks on at least three tankers transiting the Strait of Hormuz within 48 hours, including a vessel carrying about 8 million cubic feet of liquefied natural gas, considered the cargo most at risk of exploding.

At least four oil and gas tankers have turned back from attempting to transit the strait, according to ship-tracking data, hampering efforts to normalise flows through the vital trade route after months of disruption.

“Tanker traffic through the Strait of Hormuz has essentially stopped, which tells you more about risk perception right now than any statement from Washington or Tehran,” said Jorge León, head of geopolitical analysis at Rystad Energy.

The “real test” will come after the burial ceremony of Iran’s supreme leader Ayatollah Ali Khamenei later this week, León added, once the US and Iran “show whether there is still an appetite for a diplomatic off-ramp”.

Global oil prices had fallen from highs of more than $110 a barrel in late May as more tankers were able to transit the strait amid hopes that US-Iran talks would end the war, which had disrupted flows of about 20 million barrels of oil a day from Gulf producers.

In Europe, the collapse of the ceasefire reignited a 5% surge in gas market prices. The benchmark Dutch contract increased by more than €2.40 to €49.00 per megawatt hour (MWh), while the UK equivalent rose by 6 pence to 116.75 pence per therm.

The return of rising energy prices risks increasing household costs, which have faced the steepest rise in summer energy bills in four years. If sustained, higher market costs could mean rising gas and electricity prices in winter as well as higher prices at the pump.

“This is news UK drivers didn’t want to hear ahead of the summer getaway later in the month. The ending of the ceasefire is ominous for UK pump prices but not all is lost,” said Luke Bosdet, a spokesperson for the AA motoring group.

“For starters, a feature of the US-Iran war has been highly volatile oil prices that have fed through to the pump. However, the sharp fall in petrol and diesel prices has by and large tracked the more recent fall in wholesale costs and come through to the pump far more quickly than would have been expected previously,” he said.

Market analysts have stopped short of forecasting a return to oil prices over $100 a barrel, finding that the global market was more resilient to disruption than initially feared.

“Nothing can be ruled out,” said Tamas Varga, an analyst at PVM Oil Associates. “But the market’s admirable adaptability in weathering the original crisis, and the $56 decline in the price of Brent during May and June, must be kept in mind when revising oil price forecasts.”

The market initially expected a 20 million barrel per day loss to global crude supplies as a result of the effective blockade on the Strait of Hormuz from March this year. However, Gulf producers have been able to use alternative supply routes and clandestine vessel crossings to reduce the net loss to 12.2 million barrels per day.

Meanwhile, higher production from unaffected producers, the release of emergency crude stocks, and US sanctions waivers covering Russian and Iranian oil in floating storage added a further 9.1 million barrels of supply.

“The conclusion is that the effective loss from the original 20 million barrels per day was only 3.1 million,” Varga added.