Oil prices rose sharply on Wednesday as renewed fighting between the United States and Iran increased concerns over energy supplies and the future of one of the world’s most important shipping routes.
Brent crude futures gained $1.03, or 1.1%, to $95.68 a barrel by 0605 GMT, while US West Texas Intermediate crude rose 61 cents, or 0.7%, to $90.83.
The increases followed a stronger rally on Tuesday, when both benchmarks gained more than $4. Brent recorded its biggest one-day rise since July 24, while WTI posted its largest increase since July 23.
The escalation has shifted the focus in financial markets from the possibility of a wider conflict to the potential economic consequences of prolonged disruption.
At the centre of those concerns is the Strait of Hormuz, a critical route for global energy trade. Before the conflict, around one-fifth of the world’s oil consumption passed through the waterway.
Iran has effectively restricted commercial shipping through the strait, while fresh attacks on tankers have added to concerns about the safety and cost of transporting crude.
A prolonged disruption could force oil companies, refiners and commodity traders to rely on alternative supply routes, increasing freight, insurance and procurement costs.
The impact could extend well beyond the energy sector. Higher oil prices typically raise operating costs for airlines, transport companies, manufacturers and other businesses that rely heavily on fuel.
Companies could also face higher logistics and production expenses if elevated energy prices persist, potentially squeezing profit margins and prompting businesses to reconsider investment and expansion plans.
Inflation risks increase
The latest surge in crude prices could also complicate the global economic outlook.
More expensive fuel can feed through to the prices of goods and services, increasing inflationary pressure at a time when businesses and consumers remain sensitive to borrowing and operating costs.
Central banks could consequently face greater difficulty balancing inflation control with economic growth if the energy shock proves persistent.
Financial markets are therefore watching developments in the Middle East closely, with investors assessing whether the latest disruption will remain temporary or develop into a longer-term supply problem.
US inventories provide additional support
Oil prices are also receiving support from tighter US inventories.
Crude stocks in the United States fell by 2.6 million barrels in the week ended August 28, according to market sources citing American Petroleum Institute data.
Distillate inventories, which include diesel and heating oil, declined by 265,000 barrels over the same period.
Falling inventories suggest that the US market is entering the latest period of geopolitical uncertainty with less of a cushion against further supply disruptions.
For energy producers, higher crude prices could improve revenues and margins if elevated prices are sustained. For oil-importing businesses and economies, however, the opposite is likely to be true as higher fuel costs increase pressure on operating expenses and household budgets.
The outlook for oil will ultimately depend on the duration and scale of the disruption around the Strait of Hormuz and whether diplomatic efforts can restore normal commercial shipping.
Until then, businesses are likely to face greater uncertainty over fuel costs, supply chains and transport, while investors continue to price in the possibility of a prolonged energy shock.