Oil prices moved higher on Monday as uncertainty returned to the market over when the Strait of Hormuz will fully reopen. Investors had been hoping that recent discussions involving Iran and Oman would lead to a quick improvement in shipping conditions, but those expectations have weakened after Iran said that several additional conditions must be met before the strategic waterway can return to normal operations.
Brent crude futures rose by 91 cents, or about 1.1%, to $84.46 a barrel, while U.S. West Texas Intermediate crude gained 61 cents, or 0.8%, to $78.79 a barrel in early trading. The rise came after both benchmarks had fallen by more than 7% last week as markets initially became more optimistic about a possible agreement to restore shipping through the strait.
The Strait of Hormuz is one of the world’s most important energy shipping routes. A large share of global oil normally passes through the narrow waterway, which connects the Persian Gulf with the Gulf of Oman. Because of its importance, any disruption can quickly affect crude prices, shipping costs and inflation expectations around the world.
The latest uncertainty centers on negotiations between Iran and Oman over new shipping arrangements. Iran’s foreign minister said an agreement with Oman to establish new shipping lanes was close to completion. However, Tehran has made clear that reaching that agreement alone would not automatically mean the strait would fully reopen. Iran is also demanding other concessions from the United States, including compensation related to attacks and changes involving sanctions and military pressure.
That has left oil traders cautious. Markets want to see clear evidence that commercial tankers can move safely and regularly through the waterway before assuming that the supply situation has returned to normal. Until that happens, traders are likely to keep a risk premium in oil prices.
The situation has also raised concerns about shipping security. Regional tensions remain high, and attacks on energy infrastructure and vessels have added another layer of uncertainty for companies operating in the Gulf. Higher insurance and transportation costs can make oil cargoes more expensive even when the underlying crude supply is available.
The recent movement in oil prices also shows how quickly sentiment can change. Last week, expectations of a possible reopening pushed prices sharply lower. This week, renewed doubts about the timing of that reopening have reversed part of that decline. The market is therefore reacting not only to physical oil supplies but also to diplomatic developments and expectations about future shipping conditions.
For countries that depend heavily on imported crude, prolonged uncertainty could create additional economic pressure. Higher oil prices can increase the cost of transportation, manufacturing and electricity, eventually feeding into consumer prices. India and other major Asian economies are particularly sensitive to changes in international crude prices because of their dependence on imported energy. Reuters reported that oil prices will be an important factor for India’s currency and government bond markets this week.
China is also dealing with the effects of the disruption. The country has reduced crude imports from the Middle East and has relied more heavily on strategic reserves and alternative supplies as shipping through the region has remained far below normal levels.
For now, the oil market is waiting for a clearer signal from the diplomatic front. If the Strait of Hormuz begins operating normally and tanker traffic increases, oil prices could come under renewed downward pressure. But if negotiations fail or shipping risks increase, prices could rise again quickly.
The next few days could therefore be important for global energy markets. Traders will be watching Iran’s negotiations, tanker movements and any signs of improving security. Until there is stronger evidence that the waterway is operating normally, uncertainty is likely to remain a major force behind oil prices.
