Oil prices surged by as much as 3% on Wednesday, with Brent crude climbing to a two-week high of around $76 a barrel, after fresh military attacks between the United States and Iran jeopardized the fragile ceasefire agreement that had secured safe passage through the Strait of Hormuz.
Ceasefire Under Threat
Prices had been declining in recent weeks following US President Donald Trump's announcement of a ceasefire deal with Iran, which included a 60-day period of safe, toll-free transit through the Strait of Hormuz. The temporary arrangement was intended to pave the way for a final agreement on Tehran's disputed nuclear program.
However, the truce was thrown into doubt after Iran reportedly targeted tankers navigating the strategic waterway. In response, US forces launched over 80 strikes on Iranian targets, according to US military statements. Iran retaliated with strikes against Bahrain and Kuwait, escalating tensions further.
The United States also reimposed sanctions on Iranian oil, having previously waived them as part of the interim ceasefire.
Market Impact
The escalating conflict triggered a sell-off across European stock markets on Wednesday. The UK's FTSE 100 index fell by approximately 1.2% to 10,532 points in morning trading. Defence contractor Babcock led the declines, losing nearly 4%, while BAE Systems dropped about 2.5%.
Energy giants BP and Shell were among the few stocks to post gains, benefiting from the rebound in oil prices. Germany's Dax index declined by roughly 1.1%, and France's CAC 40 fell 0.9%.
Analyst Commentary
Richard Hunter, head of markets at Interactive Investor, commented: “Reports of an Iranian attack on a liquefied natural gas tanker in the Strait of Hormuz was followed by retaliatory US strikes in the region, leading to a spike of more than 3% in oil prices. The US also reimposed crude oil sales sanctions on Iran, all of which casts real doubts on the longer-term outlook for peace in the Middle East.”
