Oil gained almost 5 per cent on Tuesday as the United States and Israel’s battle with Iran intensified, disrupting energy shipments from the Middle East and stoking fears of a longer conflict.
Brent futures chalked up $3.66 or up 4.7 per cent to trade at $81.40 a barrel, its highest settlement since January 2025, while the US West Texas Intermediate (WTI) futures appreciated by $3.33 or 4.7 per cent to at $74.56 per barrel.
Israeli and US forces attacked targets across Iran on Tuesday, prompting Iranian retaliatory strikes around the Gulf as the conflict spread to Lebanon.
Iran has responded with strikes against regional energy infrastructure and tankers in the Strait of Hormuz, through which a fifth of the world’s oil and liquefied natural gas typically passes.
Also, Iraq, which is the second largest crude producer in the Organisation of the Petroleum Exporting Countries (OPEC) behind Saudi Arabia, cut production by nearly 1.5 million barrels a day.
The Iraqi government said that disrupted navigation and a shortage of available tankers have pushed storage tanks in southern export terminals toward critical levels, forcing production reductions.
The cuts could more than double within days as the country runs out of storage space for crude it cannot export due to the crisis.
Separately, a drone attack targeted the port of Fujairah in the United Arab Emirates (UAE), the country’s largest oil export hub outside the Strait of Hormuz. The incident adds to mounting security risks for Gulf energy infrastructure.
Concerns increased after Iranian media reported on Monday that Iran will fire on any ship trying to pass through the Strait.
Now, tankers and container ships are avoiding the Strait, with insurers cancelling coverage for vessels and global oil and gas shipping rates soared. Any sustained disruption materially tightens the seaborne crude market, particularly for Middle Eastern barrels bound for Asia.
US President Donald Trump said US and Israeli air attacks were projected to last four to five weeks, but could go on longer.
Analysts warn that beyond roughly three weeks of disruption, producers may have no choice but to curb output.
The market is debating how long the supply risk will last, and whether $100 oil is a floor rather than a ceiling if Hormuz does not normalise.
The American Petroleum Institute (API) estimated that crude oil inventories in the United States rose by 5.6 million barrels in the week ending February 27, after adding 11.4 million barrels in the week prior. Official data from the US Energy Information Administration (EIA) will be released later on Wednesday.