Oil Prices Rise after US Strikes on Iran with Strait of Hormuz Status in Focus

Oil futures rose on Sunday night after US strikes on Iran’s three main nuclear sites intensified fears of a potential supply shock, amid the threat that Tehran could retaliate by closing a key maritime chokepoint.

Brent crude (BZ=F), the international benchmark, gained as much as 5.7% before paring gains to trade near US$79 per barrel. West Texas Intermediate (CL=F) futures also jumped more than 2% to trade north of US$75 per barrel.

Oil prices had already posted weekly gains on Friday following the outbreak of conflict between Israel and Iran more than a week ago.

On Sunday, traders weighed possible retaliation moves from Iran, a major oil producer and exporter, following the US's direct involvement.

According to state media, Iran’s parliament voted to close the Strait of Hormuz. The final decision on whether to shut the vital waterway — which handles roughly 20% of global oil flows — rests with Iran’s Supreme National Security Council and Supreme Leader Ayatollah Ali Khamenei.

What Wall Street once viewed as a low-probability event is now being treated as a significantly heightened risk.

"Should oil exports through the Strait of Hormuz be affected, we could easily see US$100 oil," said Andy Lipow, president of Lipow Oil Associates.

Following the outbreak of the Israel-Iran war, JPMorgan analysts forecast that under a "severe outcome," a closure of the Strait of Hormuz could push oil prices to US$120–US$130 per barrel.

If crude climbs into that range, analysts predict gasoline and diesel prices could rise by as much as US$1.25 per gallon.

“Consumers would be looking at a national average gasoline price of around US$4.50 per gallon—closer to US$6.00 if you’re in California,” Lipow said.

If the conflict escalates and the US or Israel targets Iran’s oil export infrastructure, analysts warn that Tehran may retaliate by striking facilities in neighboring countries.

“In other words, ‘If we can’t export our oil, you can’t have yours,’” Lipow said.

The key issue isn’t just the potential for disruption, but how long it lasts, Rebecca Babin, senior energy trader at CIBC Private Wealth, told Yahoo Finance on Sunday.

“If infrastructure is hit but can be quickly restored, crude may struggle to hold gains,” she said. “But if Iran’s response causes lasting damage or introduces long-term supply risk, we’re likely to see a stronger and more sustained move higher.”

Last week, JPMorgan analysts noted that since 1967 — aside from the Yom Kippur War in 1973 — none of the 11 major military conflicts involving Israel have had a lasting impact on oil prices.

In contrast, events directly involving major regional oil producers — such as the first Persian Gulf War in 1990, the Iraq War in 2003, and the imposition of sanctions on Iran in 2018 — have all led to meaningful and sustained moves in oil markets.

“During these episodes, we estimate that oil traded at a US$7–US$14 per barrel premium to its fair value for an extended period,” wrote JPMorgan's Natasha Kaneva and her team.

They added that the most significant and lasting price impacts historically come from “regime changes” in oil-producing countries — whether that be through leadership transitions, coups, revolutions, or major political shifts.

“While demand conditions and OPEC’s spare capacity shape the broader market response, these events typically drive substantial oil price spikes, averaging a 76% increase from onset to peak,” Kaneva wrote.

The Organization of the Petroleum Exporting Countries and its allies (OPEC+) had raised output in the months leading up to Israel’s strike on Iran on June 13. - Yahoo Finance