Oil Prices Rise Sharply as Israel-Iran Conflict Escalates

Oil prices jumped over 2% in early Monday trading after Israel and Iran exchanged fresh strikes over the weekend, intensifying fears of regional conflict and potential disruption to Middle East oil exports. Brent rose to $75.93 per barrel and WTI to $74.60, following a sharp surge of over 7% on Friday. The renewed hostilities have heightened concerns about possible blockages in the Strait of Hormuz, a key route for nearly 20 million barrels per day of global oil shipments. Civilian casualties and military warnings from both sides underscore the growing severity of the situation. While President Trump voiced hope for a ceasefire, Iran has rejected negotiations while under attack, despite mediation efforts by Qatar and Oman. Analysts warn that although OPEC has spare capacity roughly equal to Iran's 3.3 million bpd production, sustained disruption could significantly tighten global oil supply.

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OPEC+ Faces Tight Limits in Covering Iranian Supply Disruption

Oil prices spiked up to 13% this week as the Israel-Iran conflict raised fears of major supply disruptions in the Middle East. While Iran’s oil production stands at 3.3 million bpd, OPEC+’s effective spare capacity — mainly held by Saudi Arabia and the UAE — is just enough to match that level. Analysts warn that any significant attack on Iranian infrastructure could leave global markets highly vulnerable, with little buffer for additional disruptions. The Strait of Hormuz, a critical oil shipping route, is at risk if Iran retaliates, potentially pushing prices up by $20 per barrel or more. Compounding the problem, most OPEC+ members are already near maximum output, with some "paper barrels" unlikely to be quickly mobilized due to underinvestment. Internal tensions within OPEC+ also complicate the situation, with differing views on unwinding existing production cuts amidst this volatile geopolitical backdrop.

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IEA Signals Emergency Oil Release Readiness, OPEC Rebukes Move as Premature

The International Energy Agency (IEA) announced it is prepared to release oil from its 1.2 billion-barrel emergency reserves if the Israel-Iran conflict leads to supply shortages. This prompted a strong rebuke from OPEC, with Secretary General Haitham Al Ghais accusing the IEA of inciting unnecessary market fear without current justification. Oil prices surged 7% on the news of Israeli strikes on Iranian military and nuclear targets, marking the steepest rise since Russia’s 2022 invasion of Ukraine. Though energy infrastructure has not yet been hit, concerns loom over potential disruptions, particularly if Iran targets tankers or facilities across the region, including the Strait of Hormuz. Analysts recall the 2019 Houthi attack on Saudi Arabia’s Abqaiq facility, which temporarily cut 5.7 million barrels per day from global supply. The IEA’s and OPEC’s divergent responses highlight deep divisions between major consumers and producers over how to manage geopolitical shocks in the oil market.

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Israeli Strikes Drive VLCC Forward Freight Rates to Surge

Forward freight agreements (FFAs) for VLCCs on the Middle East Gulf–China route surged as Israel’s continued strikes on Iran heightened risk in the region. Jefferies analyst Omar Nokta noted that while spot rates remain steady, forward markets now signal potential VLCC earnings of over $40,000 per day for July. Analysts from Clarksons also reported a sharp jump in sentiment, with owners pulling vessels off the market in a wait-and-see approach, indicating tightening supply. This comes after Israeli missile attacks on Iranian nuclear sites prompted Iranian threats of severe retaliation. Although closure of the Strait of Hormuz remains unlikely, risks of renewed Houthi attacks in the Red Sea could keep pressure on tanker routes. The surge in forward rates contrasts with recent lows in spot VLCC earnings, which had dropped below $26,000 per day due to earlier weak demand and rate slumps.

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Diesel Prices Surge 8% as Middle East Conflict Threatens Supply Chains

U.S. ultra-low sulfur diesel futures surged 8%—the biggest daily gain since April 2022—amid escalating conflict between Israel and Iran, outpacing increases in crude and gasoline. Analysts flagged diesel as the most exposed fuel due to its reliance on medium heavy-sour crude, which could face supply disruptions if tensions spread. The Middle East is a key exporter of distillates like diesel and jet fuel, and any shipping or production disruptions—especially near the Strait of Hormuz—pose significant global risks. Diesel inventories in the U.S. are already tight, 15% below the five-year average, adding urgency to supply concerns. Analysts now expect a 10 to 30 cent per gallon increase in U.S. retail diesel prices in the next two weeks, with gasoline prices also likely to rise 5 to 15 cents. The potential for increased regional power generation needs, such as Egypt’s shift from gas to diesel, could further constrain global distillate supplies.

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Strait of Hormuz Stays Open Amid Electronic Jamming

Despite rising tensions and targeted attacks on energy infrastructure by Israel and Iran, commercial shipping through the Strait of Hormuz remains uninterrupted, according to the Joint Maritime Information Centre (JMIC). The JMIC, which includes 46 navies, noted an “elevated” threat level but dismissed media reports of a blockade, urging companies to verify information before reacting. An Iranian Revolutionary Guard commander mentioned a potential Strait closure was "under consideration," but Iran’s foreign minister made no such statement publicly. Navigation through the strait has become challenging due to reports of electronic interference, such as GPS jamming and AIS spoofing, prompting JMIC to advise ships to rely on radar and visual navigation. These interferences may be part of Iranian efforts to shield assets from Israeli airstrikes. Although energy facilities have been hit on both sides, analysts say the damage is limited and aimed more at disrupting domestic fuel distribution than crippling exports.

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Chinese Firms May Join $22.8 Billion Bid for Li Ka-shing’s Global Ports Portfolio

Chinese ports giant China Cosco Shipping Corporation is reportedly in talks to join a global consortium aiming to acquire 43 ports from CK Hutchison, owned by billionaire Li Ka-shing. The $22.8 billion deal is currently being led by Mediterranean Shipping Company, run by the Aponte family, with U.S. firm BlackRock also part of the group. The port assets span 23 countries, including two near the Panama Canal, and are under exclusive negotiation until July 27. Bloomberg reports that including Chinese firms emerged as an option following recent high-level talks between Chinese and U.S. officials in Switzerland. The potential involvement of China Cosco, a state-backed enterprise, has stirred scrutiny from both Chinese and U.S. stakeholders. Neither CK Hutchison nor Cosco has commented, and Reuters has not independently verified the report.