Oil Prices Climb as US-Iran Hostilities Threaten Red Sea Shipping Route

Escalating US-Iran Military Hostilities

The fragile geopolitical truce that had tempered energy markets since June has largely dissolved, leading to a direct confrontation between American and Iranian forces. The strikes continued through Thursday, marking the sixth consecutive night of operations intended to degrade Iranian military capabilities.

Tehran has responded with a series of missile and drone attacks aimed at U.S. military bases in the region, including a strike on an expanded air base in Jordan. The conflict has reached a point where Iranian leadership has explicitly characterized the situation as an existential war with the United States, as reported by CNBC.

Threats to the Red Sea and Strait of Hormuz

Market anxiety is centered on the potential for a dual-route disruption. While the Strait of Hormuz has already seen reduced traffic—with vessel crossings dropping to seven on Wednesday compared to 13 the previous day—there is growing concern that the Bab el-Mandeb strait could be next. Three sources told Reuters that Iran has instructed Houthi forces in Yemen to stand ready to block the Red Sea oil route if the U.S. proceeds with threats to strike Iranian power infrastructure.

For more on this story, see Oil Prices Surge as US-Iran Conflict Threatens Strait of Hormuz Shipments.

“With the Strait of Hormuz already closed, this threat raises the serious risk of both of the Middle East’s primary oil export routes being disrupted at the same time.”

Alex Hodes, director of energy market strategy at StoneX, via CNBC

The volume of oil transiting the Bab el-Mandeb route is significant, totaling 7.4 million barrels per day in June, which represents roughly 7% of global output. Analysts warn that a simultaneous closure of both Hormuz and Bab el-Mandeb would severely stress global supply chains and drive up insurance premiums for tanker operators.

This follows our earlier report, Crude Oil Prices Surge: Brent Tops $87 and US Oil Breaks $80.

Market Volatility and Price Benchmarks

Oil prices have reacted sharply to these developments, though recent sessions have shown some cooling. After climbing nearly throughout the week, Brent crude futures recently settled at $84.23 a barrel, while U.S. West Texas Intermediate (WTI) futures closed at $78.95. These figures reflect a slight dip of roughly 1% from session highs, yet prices remain near their highest levels since mid-June.

Tim Waterer, chief market analyst at KCM Trade, described the current environment as a dual-risk scenario that keeps a geopolitical premium embedded in global benchmarks. Meanwhile, International Energy Agency Executive Director Fatih Birol warned that energy security remains a critical, unresolved issue.

“We should be worried, and I am worried, if the situation does not improve in the next few weeks.”

Read also: Gold Plummets as Oil Surges: How U.S.-Iran Tensions Are Shaking Markets.

Fatih Birol, Executive Director of the International Energy Agency, via Channelnewsasia

Iraqi Export Increases and Future Uncertainty

Amid the broader regional turmoil, some supply data provides a counterweight to the disruption fears. Iraqi crude loadings have more than doubled in the first half of July, averaging roughly 1.2 million barrels per day. This acceleration follows a period of restricted shipments, providing a marginal buffer in a market otherwise characterized by supply constraints and heightened military tension.

Looking ahead, market participants are monitoring whether recent diplomatic signals—such as Iran’s release of a U.S. citizen—might offer a path toward de-escalation. However, as noted by analysts at StoneX, the trend of declining crossings at key maritime chokepoints is unlikely to reverse without a sustained period of stability.