Energy Markets: U.S.-Iran Tensions Escalate, Dual Strait Crisis Sends Crude Oil Prices Up 3% to Six-Week High

U.S.-Iran conflict continues to escalate, as Iran-backed Yemeni Houthi militants threaten to attack Saudi Arabian oil transport vessels, rapidly increasing market concerns over global energy supply disruptions. This drove international oil prices sharply higher on Wednesday, with Brent crude surging over 3% to its highest level in nearly six weeks.

London-traded Brent crude for September delivery rose $3.06, or 3.36%, to close at $94.07 per barrel, briefly touching $95.47 during the session—the highest since June 11. U.S. West Texas Intermediate (WTI) crude futures gained $2.49, or 2.95%, closing at $86.83 per barrel.

The three-month Brent crude futures spread, reflecting tightness in physical supply, widened to $9.26 per barrel—the largest gap since May 22—as backwardation deepened. Backwardation, where near-term delivery prices exceed forward prices, typically signals market expectations of short-term supply tightness.

Geopolitical risks have become a central market focus. The U.S. military confirmed it conducted airstrikes against Iran for the 11th consecutive night. Shortly after the U.S. air raids, Kuwaiti forces reported their air defense systems intercepted Iranian drones.

Former President Donald Trump warned that if Tehran attacks ships transiting the Strait of Hormuz, the U.S. would bomb and destroy an Iranian bridge or power plant, further amplifying market fears of conflict escalation.

An Iranian Revolutionary Guard Corps spokesperson warned shipping companies via social media platform X that naval mines had been laid in the southern shipping lane of the Strait of Hormuz.

In addition to the Strait of Hormuz, Iran-backed Houthi forces have announced a blockade of Saudi Arabia and threatened attacks on vessels carrying Saudi oil through the Bab el-Mandeb Strait, placing global energy transportation under a 'dual strait risk'.

The European Union's naval escort mission Aspides stated that vessels linked to Israel, the U.S., or Saudi Arabia now face a significantly elevated risk of Houthi attacks, advising ships to avoid the Red Sea and Gulf of Aden.

Tim Waterer, Chief Market Analyst at KCM Trade, noted that energy markets are simultaneously concerned about the security of both the Strait of Hormuz and Bab el-Mandeb Strait, with traders closely monitoring changes in Red Sea shipping traffic.

Since the U.S.-Iran ceasefire broke down earlier this month, vessel traffic through the Strait of Hormuz has sharply declined again, increasing the strategic importance of the Bab el-Mandeb Strait—located at the southern entrance of the Red Sea—for Saudi oil exports.

However, following Houthi blockade threats, five oil tankers already rerouted on Wednesday, avoiding the Bab el-Mandeb Strait and choosing alternative routes.

Analysts at Gelber & Associates pointed out that market concerns over supply disruptions continue to rise. As Red Sea security deteriorates, commercial vessels and oil tankers are being forced to change routes, simultaneously increasing global energy logistics costs and supply risks.

Affected by these threats, several Asian refiners have begun planning to load crude oil from Saudi Arabia's Yanbu port, transporting it via the Suez Canal or around Africa to Asia to reduce shipping risks.

Frank Walbaum, Market Analyst at Naga.com, stated that Houthi threats forcing oil tankers to reroute could not only exacerbate physical market supply pressures but also impact Saudi oil exports, further pushing up oil prices.

On the domestic front, the U.S. Energy Information Administration (EIA) reported that U.S. crude oil inventories rose by 2 million barrels to 411.7 million barrels for the week ending July 17, due to reduced refinery runs, lower crude exports, and increased imports.

This data contrasted sharply with market expectations. According to a Reuters survey, analysts had forecast a 1.1 million barrel drawdown, but inventories unexpectedly increased by 2 million barrels, indicating ongoing domestic supply-demand pressures. Nevertheless, with Middle Eastern supply risks dominating market sentiment, the bearish inventory data failed to halt rising oil prices.

Additionally, EU ambassadors failed to reach consensus on the 21st round of sanctions against Russia for its invasion of Ukraine, with the situation continuing to draw attention from energy markets.