US Iran strikes push oil above $90, US gasoline crosses $4 as Strait of Hormuz crisis deepens

Benchmark oil prices crossed $90 per barrel for the first time in five weeks after the US launched a ninth day of strikes against Iran, with no clear path toward deescalation or a reopened Strait of Hormuz. In the United States, gasoline prices at the pump crossed $4 per gallon again on Monday, reapplying pressure to the American domestic economy only three months ahead of the US midterm elections.

Oil markets spike as strikes continue

Futures on Brent crude, the international benchmark, rose as much as 3.8% Monday morning to briefly cross $91 per barrel before pulling back to around $88. Contracts on US benchmark WTI crude rose roughly 3% to cross $84 before falling to roughly $81 a barrel.

The US launched a fresh round of airstrikes in Iran, per US CENTCOM, targeting a variety of military and communications targets. Iran continued its own wave of strikes against US military installations inside Gulf nations, including Kuwait, Bahrain, and Jordan, killing at least three US service members.

Prices pulled off their highs overnight after Iran said mediators from countries including Pakistan and Qatar contacted leaders in Tehran, as the market watches for any sign of diplomatic progress. “The diplomatic apparatus has been active in recent days, and ideas from some mediators have been conveyed to the Islamic Republic of Iran,” an Iranian foreign ministry spokesman said to reporters.

Strait of Hormuz traffic plunges

As the US air bombing campaign enters its 10th consecutive day, the renewed wave of conflict between the US and Iran shows no signs of letting up. With no progress on the reopening of the strait, which usually sees roughly a fifth of the world’s seaborne oil flows, shipping through the critical waterway has fallen once more. Traffic hit a three-week low on Friday, July 17, with only eight crossings.

In the Gulf region, the focus remains on the Strait of Hormuz, as Iran claims that the initial US-Iran memorandum of understanding, signed in June, grants the Islamic Republic the right to control the waterway and dictate shipping terms. Fear of renewed violence has sent crossings plunging as shipowners and captains reevaluate risk. An international maritime safety watchdog has flagged multiple vessels struck by projectiles in the past week, while Iran’s Revolutionary Guard Corps said Sunday that two oil tankers had “exploded” in the Strait of Hormuz, per Reuters.

Refined products feel greater pressure

While crude prices have steadily risen over the past month, the pressure on refined products has been even greater, squeezing international markets for derivatives such as gasoline, diesel, and jet fuel. Roughly 2.1 million barrels per day of the 3 million bpd of refinery capacity remain offline, while Russia’s refinery exports continue to fall amid bombardment by the Ukrainian military.

The 3-2-1 crack spread, a commonly cited benchmark for the refining market, reached an all-time high above $70 per barrel on Friday, per Bloomberg data. “These dynamics help explain the market’s message,” JPMorgan head of global commodities Natasha Kaneva said. “Distillate cracks in both the US and Europe have surged toward record highs — an indication that the shock is increasingly becoming a refining story rather than simply a crude supply story.”

Diplomacy and war in a cycle

Both sides of the war have suggested that diplomatic solutions to the crisis remain possible. US Secretary of State Marco Rubio said to reporters over the weekend that Washington continues to telegraph that the US is willing to negotiate. Iranian spokesman Esmaeil Baghaei said on Monday, “Diplomacy is a tool through which we pursue our national interests, just like war.”

The war’s cycle of strikes to talks to strikes has raised fears that the US and Iran may end up in a wider conflict than either government bargained for. With global oil stores drawn down during the first phase of war from March to May, analysts warn that the market is in an increasingly precarious position. “No analogy is perfect, but the policy evolution around the Strait of Hormuz is starting to look increasingly familiar: bargaining, breakdown, escalation, and then back to bargaining,” JPMorgan’s Kaneva wrote. “The debate is therefore gradually shifting from whether the Strait is open or closed to the terms under which it remains open … From a market perspective, inventories leave little room for error.”

For Nigeria, a net importer of refined petroleum products, the combination of rising crude prices and surging refining margins means higher landing costs for petrol and diesel. With the naira under pressure and subsidy removed, Nigerian consumers and businesses face renewed fuel price increases if the Strait of Hormuz crisis continues to tighten global supply.