Supply risk premium returned as oil climbed on possible US–Iran escalation

Oil prices rallied sharply on Thursday, with both Brent and WTI reaching multi-month highs as geopolitical risk premia surged amid escalating tensions between the US and Iran.

Brent crude settled at $70.71 a barrel, up $2.31 or 3.4%, its highest close since 31 July. 

WTI rose $2.21 or 3.5% to $65.42 a barrel, the strongest finish since 26 September. The technical advance pushed both benchmarks into overbought territory.

Market positioning was driven by mounting concerns that potential US military action against Iran could disrupt supplies from one of OPEC’s largest producers. Multiple sources indicate the US administration is considering targeted strikes on Iranian security forces and leadership to bolster domestic unrest.

Risk sentiment intensified after the Associated Press reported Iran notified mariners of planned live-fire exercises in the Strait of Hormuz next week. The narrow chokepoint, linking the Gulf to open waters, handles roughly 20% of seaborne crude flows; even temporary disruption would tighten an already fragile supply backdrop.

Iran produces about 3.3 million bpd, around 3% of global oil output, underscoring the sensitivity of markets to any supply interruptions.

Written by: Farid Muzaffar