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Oil prices rose sharply on Monday after the United States issued an official warning to American-flagged ships to avoid entering Iranian territorial waters, particularly when passing through the Strait of Hormuz and the Gulf of Oman. The warning revived geopolitical concerns in one of the world’s most important energy transit routes, pushing crude prices higher as a “risk premium” returned to the market.
U.S. Warning Sparks Tensions in Strait of Hormuz
The U.S. Department of Transportation, through its Maritime Administration, advised American vessels to steer clear of Iranian waters while navigating the Strait of Hormuz. This followed an incident last week in which a U.S.-flagged tanker reportedly faced harassment from Iran’s Revolutionary Guard, according to U.S. authorities. The Strait of Hormuz is a vital chokepoint, handling roughly 20% of global oil trade. Any disruption or threat in the region immediately impacts oil prices due to the market’s sensitivity to potential supply interruptions.
Brent crude futures climbed about 1.5% to $69.04 per barrel, while West Texas Intermediate (WTI) gained 1.3% to $64.36 per barrel. This rebound comes after a period of relative price weakness, as markets had begun pricing in hopes of easing geopolitical tensions through ongoing nuclear talks. The latest U.S. warning has, however, pushed risk premiums back into the market. Gasoline prices in the United States also rose, hitting a two-and-a-half-month high, supported by both the weaker dollar and higher crude prices.
Weak Dollar Boosts Oil Gains
Alongside geopolitical risks, oil benefited from the U.S. Dollar Index falling to a one-month low. A weaker dollar makes commodities priced in dollars, including oil, more attractive to holders of other currencies, increasing demand and lifting prices.
The Strait of Hormuz has long been a flashpoint in U.S.-Iran relations, with past incidents involving the seizure or inspection of commercial vessels. The U.S. Maritime Administration notes that ships passing through the strait face “historical risks” of interception or inspection by Iranian forces, as seen in the February 3 incident prompting this week’s warning.
The strait is a critical artery for oil supplies from Gulf producers, including Saudi Arabia, the UAE, Kuwait, and Iraq. Any disruption could trigger global oil price spikes, higher shipping insurance costs, delayed crude and gas shipments, and increased fuel prices worldwide. Shipping companies may also reroute vessels to avoid risks, raising transportation costs and affecting global supply chains.
The recent rise in oil prices has bolstered energy stocks, while equity markets remain sensitive to geopolitical developments. The weaker dollar has further strengthened demand for commodities, adding to market volatility.
Outlook for Oil Prices
The continuation of higher oil prices will depend on several factors, particularly developments in U.S.-Iran tensions. Any new escalation could push prices further. A continued weaker U.S. dollar would also support global oil prices. Additionally, stronger global economic activity and OPEC+ production policies will influence prices, with any changes in output potentially moving the market in either direction.
