Oil Markets Steady but Cautious Amid U.S.–Iran Tensions

After a very tense weekend, oil markets are stable yet on edge. Following U.S. strikes on Iran this past Saturday, prices rose to a five-month high before plummeting on Tuesday after news of a ceasefire between Iran and Israel. By Wednesday morning, prices were beginning to edge higher again because of uncertainty and the prospect of a flare-up in the Persian Gulf.

 

The calm is fragile. Since Iran hit back with missiles on U.S. bases, it has kept its powder dry. However, there is still a fear it could disrupt the Strait of Hormuz, which sees about one-fifth of the world’s oil flow through it. That situation seems unlikely for now. Yet, the threat alone is enough to keep oil traders on their toes.

 

The latest explosion began when U.S. President Trump ordered targeted airstrikes on June 21 against three Iranian nuclear sites. Iran’s immediate attack after Israel’s air strikes, aimed at curbing Iran’s nuclear ambitions, raised fears of a military conflict. Global oil prices surged over the weekend as markets took the threat of war into account. When Tehran agreed for ceasefire on early Tuesday, prices eased but sense of caution never left.

 

For the White House, the timing couldn’t be worse. Gas prices have been an issue that gets political weight. With inflation still top of mind for voters, a sudden energy shock could quickly turn into an economic and political headache. Trump took to social media over the weekend to demand that oil companies “KEEP OIL PRICES DOWN,” warning that they would be “PLAYING RIGHT INTO THE HANDS OF THE ENEMY” if they did not. 

 

The government is walking a fine line — when they project strength abroad but try to avoid pain at home. The government is “on it,” Energy Secretary Chris Wright stated, which suggests that the U.S. could take action to stabilize prices. The Strait of Hormuz is being “closely monitored” according to Press Secretary Karoline Leavitt. “the Iranian regime would be foolish to provoke a disruption to supply,” he said to reporters.

 

Economically, the stakes are significant. The Strait being blocked or disrupted by Iran could hurt global growth, analysts at Goldman Sachs said this week. The rise in prices due to supply shock, which may increase inflation for consumers and businesses, seemed to be under control. The uncertainty caused the Federal Reserve to hold interest rates earlier this month.

 

According to Jerome Powell, the Fed Chair, turmoil in the Middle East typically results in “temporary spikes” in energy prices but the U.S. economy today is less reliant on imported oil than in prior decades. The United States’ surge in domestic production has cushioned the economy from foreign shocks. Even so, the gas prices would still be subject to global changes. If the markets get too tight, Americans will feel it.

 

Economists say Trump’s wider trade agenda could add to those risks, which draws criticism from them. On July 9, he will reimpose broad tariffs on most U.S. trading partners. This will raise import prices at the same time that households are facing higher energy costs. According to James Knightley, the chief international economist at ING, the combined effect could “squeeze households’ spending power” and create “another wave of pain for the consumer.”

 

The entire world will greatly suffer because of this. the Strait of Hormuz is one of the most significant energy "points of congestion" that takes oil to Asia, Europe and beyond. Beijing should “take a stand” against Iranian escalation, said Secretary of State Marco Rubio. In an interview with CBS, he stated that it will with us but it will with the rest of the planet a lot more.

 

Saudi Arabia, the UAE, and other major producers have emergency reserves they could tap to alleviate some tension in the market, but that may only go so far. OPEC has handled similar situations before. For instance, during the Gulf War and during the 2019 tanker attacks. However, coordination among its members has weakened in recent years. If there is not a unified response, even a little disruption can send prices higher.

 

Traders are betting that cooler heads will prevail for now. Not quite ready to engage in war with each other, Iran and Israel’s agreement to cease fire has bought them some time. Yet the situation remains delicate. Energy markets are always the first mover to factor in geopolitical uncertainty more than any other sector. Next move will set the tone for the rest of the summer.

 

If pressures ease, oil prices may decrease, bringing relief to consumers and the White House. The oil crisis of 1979 and the drone strike on Iran’s General Soleimani in 2020 show that the stability of the Middle East can’t be taken for granted. Even the perception of risk can move prices in a heartbeat.

 

Right now, the global energy market is in a strange and kind of tense moment of calm. Oil is steady, but beneath the surface, anxiety runs deep. The world is watching Washington, Tehran – and holding its breath.