Oil prices rise in choppy session as investors weigh US strikes on Iran

Oil prices rise in choppy session as investors weigh US strikes on Iran

Oil prices rose on Monday during a volatile trading session, following the United States’ decision to join Israel in launching attacks on Iran’s nuclear facilities over the weekend. The escalation has heightened concerns over potential disruptions to global oil supply.

As of 1000 GMT, Brent crude futures were up 78 cents, or 1.01%, at $77.79 a barrel. U.S. West Texas Intermediate (WTI) crude increased by 76 cents, or 1.03%, to $74.60.

President Donald Trump said U.S. forces had "obliterated" key Iranian nuclear sites in coordinated strikes with Israel. The attacks, which included fresh Israeli airstrikes on Monday targeting Tehran and the Fordow nuclear facility, marked a significant escalation in Middle East tensions. In response, Iran vowed to defend itself and warned that the U.S. strikes had broadened the scope of legitimate military targets.

Iran, the third-largest oil producer in OPEC, condemned the U.S. action, with officials calling President Trump a “gambler” for aligning with Israel. China also criticized the strikes, stating they undermined U.S. credibility and warned the situation could spiral out of control.

The market reacted sharply. Both Brent and WTI briefly touched five-month highs of $81.40 and $78.40 respectively earlier in the session before retreating during European trading hours. Prices later rebounded to post 1% gains.

Since the conflict began on June 13, oil prices have been climbing amid fears that Iran could retaliate by disrupting the Strait of Hormuz — a vital shipping route through which about 20% of the world’s crude oil passes.

Despite the heightened geopolitical risks, oil supply remains unaffected for now. Analysts suggest the market is factoring in a geopolitical risk premium, but caution that volatility is likely to persist.

“The geopolitical risk premium is fading slightly, as no supply disruptions have occurred yet,” UBS analyst Giovanni Staunovo told Reuters. “However, uncertainty around the conflict’s trajectory means market participants are still pricing in risk, keeping prices volatile.”

Saxo Bank analyst Ole Hansen echoed the concern: “All eyes are on the Strait of Hormuz and whether Iran might attempt to block or interfere with tanker traffic.” He told Reuters that even the threat of disruption could delay shipments and push prices higher in the short term.

In a report published Sunday, Goldman Sachs projected that Brent prices could briefly spike to $110 per barrel if flows through the Strait were cut in half for a month. Prices could remain about 10% lower than normal for nearly a year afterward, the bank said. Nonetheless, it maintained that a major, sustained disruption is unlikely, given global efforts to avoid such an outcome.

Closing the Strait would also harm Iran, analysts noted, as the country relies heavily on oil exports passing through the waterway. “A long-term closure would significantly damage Iran’s own economy, making it a risky strategy,” Sugandha Sachdeva of research firm SS WealthStreet told Reuters.

"Indian markets have shown impressive resilience in recent months, supported by strong domestic macro fundamentals, moderating inflation, and healthy institutional flows. However, fresh geopolitical uncertainties surrounding the potential closure of the Strait of Hormuz have raised new concerns for global trade and oil-dependent economies like India.

"A potential closure or even a credible threat to the Strait of Hormuz through which India sources nearly 85% of its crude oil could sharply drive-up oil prices, impacting India’s economy. However, a potential Strait of Hormuz crisis poses downside risks, a sharp oil price spike could raise inflation, strain growth, and widen the current account deficit. While domestic inflows may remain supportive, foreign investor sentiment could weaken, and high equity valuations particularly in mid-caps may face correction pressures," said Rohit Sarin of Client Associates.

Prathamesh Mallya, DVP- Research, Non-Agri Commodities and Currencies, Angel One gave the possibilities and different scenarios for oil.

Situation de-escalates – Best case Scenario - $60 becomes the baseline for WTI as OPEC continues its tap of supplying global markets with ease

Situation escalates- and the Strait of Hormuz shuts down – Puts 20 percent of the global maritime trade at risk- rising fuel as well as transit costs- $120-130/bbl looks like a very high possibility.

Given the historical context, Iran has threatened close the Strait of Hormuz several times in the past, but has never actually done so which gives a breathing space for oil markets a distant possibility of oil prices moving higher towards $120-130/bbl mark.

In the overall scheme of things, $60 becomes the base line, $100 becomes the midline and $120-130 becomes the extreme point.

With inputs from Reuters