Brent tops $90 after US-Iran attacks. What could happen next?

Dubai: Brent crude climbed above $90 a barrel on Monday, reaching its highest level in more than a month after escalating attacks between the US and Iran raised fresh concerns over oil shipments through the Strait of Hormuz.

The global benchmark gained 2.5% to trade just above $90 and rose as much as 3.8% to more than $91 during the session. US benchmark West Texas Intermediate gained nearly 2.8% and moved towards the $84 to $85 range.

The increase followed attacks on vessels attempting to cross the Strait of Hormuz, damage to an oil facility in Kuwait and a ninth consecutive night of US strikes against Iran.

Higher oil prices are also putting inflation back on investors’ radar, with more expensive energy capable of raising transport, manufacturing and food production costs if the increase is sustained.

Iran said its ceasefire with the US had effectively collapsed, raising the possibility of further disruption to oil and gas flows through one of the world’s most important shipping routes.

The US said its latest strikes targeted Iranian military command centres, air defence systems, coastal surveillance facilities, maritime capabilities and missile and drone launch sites.

Kuwait also reported intercepting Iranian drone attacks after Kuwait Petroleum Corp said an oil facility was struck on Saturday and suffered significant damage. The company did not identify the affected site.

The UK Maritime Trade Operations agency reported that a vessel caught fire northwest of Kumzar in Oman after being hit by an unknown projectile. The crew later abandoned the ship.

Traffic through the Strait of Hormuz has slowed, while regional oil exports have yet to return to the levels recorded before the conflict, according to Linh Tran, Market Analyst at XS.com.

Saudi Arabia has also redirected a large share of its July oil exports through the Red Sea port of Yanbu, indicating that producers are reducing their reliance on Gulf shipping routes while security risks remain elevated.

The latest surge largely reflects concern about supplies that could be disrupted if attacks spread to more tankers, ports and oil facilities.

Physical oil flows have not yet suffered the prolonged disruption that would normally be required to keep prices at significantly higher levels, leaving the market sensitive to any improvement or deterioration in regional security.

WTI could move towards $88 to $90 a barrel if attacks directly affect ports, tankers or shipping through the Strait of Hormuz, Tran said.

“The $100 level, however, should still be viewed as an extreme-risk scenario that would require a prolonged and significant disruption to physical supply.”

Oil prices could retreat towards $78 to $80 if shipping remains operational and tensions ease, with additional OPEC+ supplies and weaker demand expectations regaining influence.

OPEC+ has agreed to increase its production target by another 188,000 barrels per day from August, continuing the gradual return of supply to the global market.

The actual increase will depend on how much spare production capacity members can deploy and whether oil can be transported safely through the region.

OPEC has also lowered its forecast for global oil demand growth in 2026, raising questions over whether consumption is strong enough to sustain an extended price increase once the immediate security premium fades.

Those factors provide some resistance to the rally, although any confirmed disruption to Strait of Hormuz traffic could quickly return supply concerns to the centre of the market.

Oil’s rise has unsettled bond markets after recent softer US economic data had reduced expectations that the Federal Reserve would need to raise interest rates.

Higher energy costs could slow that improvement by feeding into transport, production and consumer prices. Treasury futures declined on Monday, while government bonds in Australia and New Zealand also fell amid concern that cost pressures could persist.

Higher borrowing costs would add another challenge for consumers and businesses if central banks respond to renewed inflation by keeping interest rates elevated or tightening monetary policy.

Stock markets steadied after last week’s technology-led sell-off, although investors continue to weigh the durability of artificial intelligence spending alongside the economic impact of the escalating Middle East conflict.

- With inputs from Bloomberg.