Oil Prices Rise Weekly as US Threatens Indefinite Iran Blockade

Oil prices closed higher on Friday and were poised for weekly gains after the United States threatened an indefinite naval blockade of Iran, reigniting concerns about disruptions to crude supplies from the Middle East. Brent crude futures traded at $87.19 a barrel, while U.S. West Texas Intermediate (WTI) crude futures fetched $81.75 a barrel. Both benchmarks recorded significant weekly increases of approximately 4.3% and 4.6%, respectively.

U.S. Treasury Secretary Scott Bessent, in an interview with Newsmax, stated that Washington could increase economic pressure on Iran following stalled ceasefire talks and would implement “measures like have never been seen in the history of economic isolation of a country.” This announcement on Thursday signaled that the U.S. could maintain an indefinite naval blockade against Iran and further intensify economic pressure on Tehran. Bjarne Schieldrop at SEB Research noted that higher oil prices are a natural result of this latest U.S. approach, which implies little hope of a near-term resolution in the Middle East.

These developments led to shipping traffic through the strategic Strait of Hormuz, which handles about one-fifth of global daily oil and liquefied natural gas supplies, falling below the month's average. As tensions escalated with both the U.S. and Iran making competing claims over control of the strait, the UAE state news agency WAM reported that two vessels from the state-owned Abu Dhabi National Oil Company (ADNOC) were attacked while transiting the strait on Thursday. The UAE government condemned the incident as an Iranian attack.

Since the U.S.-Israeli attacks began in late February, regional tensions have persisted, with the U.S. imposing a naval blockade to disrupt Iran's oil exports, which are vital to its economy. This embargo was temporarily lifted as part of an interim peace deal signed in June but was reimposed after the agreement collapsed within weeks. Iran maintains that the Strait of Hormuz is under its control and that its conditions must be met for it to reopen to international shipping.

While supply concerns are driving price increases in the markets, several counterbalancing factors are limiting the rise in oil prices. The Organization of the Petroleum Exporting Countries (OPEC) has revised down its global demand growth forecasts, and U.S. crude inventories posted their largest weekly increase in over three and a half years. Schieldrop from SEB Research stated that a return to normal flows out of the Strait of Hormuz is now suddenly without any near-term hopes, with experts noting these two opposing forces are balancing the market.