Oil prices moved higher in post-settlement trade on Wednesday after the U.S. military began launching new strikes on Iran. The market reaction followed public warnings from the U.S. president and developments that raised security risks in the Strait of Hormuz, a key chokepoint for global energy shipments.
Market moves
Brent crude last traded at $79.28 a barrel, rising from a settlement price of $78.02 after the benchmark closed up more than 5% to finish Wednesday's session at its highest level in over two weeks. U.S. West Texas Intermediate was trading at $74.76 a barrel, up from the session settlement of $73.52.
Political and military developments
U.S. President Donald Trump threatened fresh strikes against Iran, saying such action could come as soon as Wednesday night. He also stated that an interim deal intended to halt the Iran war was "over", while indicating he did not want a full-scale war.
The U.S. Central Command announced it was launching additional strikes on Iran with the stated aim of keeping the Strait of Hormuz open to maritime traffic. A U.S. official said ongoing U.S. strikes were expected to be larger than attacks carried out on Tuesday.
Iranian media reported explosions in Bandar Abbas, Abu Musa, Bushehr and other locations within the country. Iranian authorities said they had struck U.S. military sites in Bahrain and Kuwait, which in turn prompted U.S. retaliatory strikes.
Background to the flare-up
The latest military action follows a recent escalation that began with Iranian attacks on ships transiting the Strait of Hormuz. In response to those attacks, the United States revoked sanctions relief that had allowed Iranian oil sales under the interim deal reached between the parties last month.
Strategic significance of the strait
Before the conflict, about one fifth of global oil supplies passed through the Strait of Hormuz, and control of the waterway has been cited as Tehran's principal leverage in the confrontation, which began after U.S. and Israeli airstrikes against Iran on February 28. Following attacks on two tankers on Tuesday, maritime authorities raised the threat level for vessels transiting the strait to "severe".
What this means for markets and participants
Heightened military activity and the risk to shipping lanes have driven a near-term rise in benchmark crude prices. Traders, energy companies, insurers for maritime operations and related logistics providers are among those directly exposed to changes in shipping security and oil price volatility.