Oil prices experienced a dramatic surge before moderating, as markets reacted to the effective closure of the Strait of Hormuz due to the ongoing conflict involving the US, Israel, and Iran. Brent crude, the global benchmark, initially jumped by as much as 13 per cent to its highest level since January 2025, before settling around 5 per cent higher near $US76 a barrel. The Strait of Hormuz, a crucial waterway for global oil and gas transport, has seen tanker traffic significantly reduced as shipowners and traders implement a self-imposed pause amidst the escalating tensions.
While Iranian authorities maintained that the Strait remained open, reports also surfaced of attacks on three oil tankers. US President Donald Trump announced that American forces had sunk nine Iranian naval vessels, vowing to continue combat operations until all objectives were met. The heightened geopolitical risk has triggered volatility across various asset classes.
Gold, typically seen as a safe-haven asset, also saw an initial spike before retracing some of its gains. Global equity markets initially declined before partially recovering. In response to the escalating conflict, OPEC+ agreed during a pre-arranged weekend meeting to increase quotas next month by 206,000 barrels a day. This decision comes as the group, which includes Iran, Saudi Arabia and Russia, had previously planned to resume moderate production increases before the outbreak of hostilities.
Citigroup analysts anticipate Brent crude to trade between $US80 and $US90 a barrel in their base case over the coming week. They suggest potential de-escalation scenarios, including a change in Iranian leadership or a US decision to scale back operations after achieving specific military objectives.
