Global oil prices saw an increase on Friday following an exchange of fire between the United States and Iran in the strategically important Strait of Hormuz. The US stated it conducted self-defense strikes in response to what it described as "unprovoked" Iranian attacks as US ships were navigating out of the Persian Gulf through the waterway.
Iranian state media reported that the US had violated a ceasefire agreement that was established in April. The international Brent crude oil benchmark price rose by nearly 3% to almost $103 (£75) a barrel at one point before settling back to around $100. This development occurred despite US President Donald Trump stating on Friday that the US-Iran ceasefire remained in effect. Iranian state media also reported that the situation "is back to normal now."
The Strait of Hormuz is a critical chokepoint for global energy transport, with more than one-fifth of the world's oil and gas typically passing through it. The waterway has faced significant disruption since the commencement of the US-Israel war with Iran. Prior to this conflict, oil was trading at approximately $70 a barrel.
President Trump informed reporters that three US destroyers were involved in the recent exchange of fire. He stated on social media that several Iranian small boats had been "completely destroyed" and that missiles aimed at US ships were "easily knocked down." In a subsequent comment to ABC News, Trump characterized the Iranian strikes as "just a love tap."
Trump also said that negotiations between the US and Iran are ongoing, and reiterated Washington's demand that Tehran must never possess a nuclear weapon. "The talks are going very well, but they have to understand if it doesn't get signed, they're going to have a lot of pain," he told reporters. "I believe they want the deal more than I do."
According to Islamic Republic of Iran Broadcasting, Iran's military initially accused the US of violating the ceasefire by targeting its ships, including an oil tanker, as they were moving toward the Strait of Hormuz. The report also mentioned "aerial attacks" along the coast near the strait, which prompted Iranian forces to retaliate against US military vessels, causing "significant damage."
The US military has denied that its ships sustained any hits. US Central Command also emphasized its objective was not to escalate the ongoing conflict. Traders are viewing the current ceasefire as "fragile," reacting to the developments even as both nations downplay the tensions, according to Huifeng Chang, an economics researcher at the National University of Singapore.
Earlier in the week, President Trump had expressed optimism that the war, which began on February 28 when the US and Israel attacked Iran, would conclude swiftly as Washington pursues a framework for more comprehensive negotiations with Tehran.
In addition to the oil price surge, the conflict has also driven up the cost of other petroleum products, such as jet fuel, which has seen a price increase of approximately 50%. International Airlines Group (IAG), the parent company of British Airways, announced on Friday that it anticipates its fuel expenses to reach €9 billion (£7.8 billion) this year, an increase of about €2 billion from the previous year.
IAG stated that it has secured pricing for roughly 70% of its fuel requirements for the remainder of the year and currently perceives "no issues with fuel availability" in its primary markets. Despite these assurances, shares in the airline group declined by more than 5% in early trading on the London Stock Exchange.
Chris Beauchamp, chief market analyst at the investing platform IG, commented on the market's reaction. He noted that the limited recovery in IAG's share price since April suggests a degree of market skepticism regarding the potential for a full recovery, particularly until the conflict is definitively resolved. "But as last night's clashes show, even a start to negotiation seems a long way off," Beauchamp added.
