Key insights
- Rising geopolitical tensions in the Middle East, particularly involving Iran and the Strait of Hormuz, are pushing oil prices higher. An analyst warns of a potential spike above $150 if the conflict persists, exacerbating inflationary pressures. Stalled US-Iran negotiations and the lack of readily available alternative energy sources contribute to the bearish outlook for US equities due to increased energy costs.
Investing.com -- Oil prices climbed more than on Monday as U.S.-Iran negotiations showed little sign of progress, keeping supply flows through the Strait of Hormuz constrained and stoking fears of a prolonged disruption to global crude markets.
Brent crude futures rose 2% to $107.46 a barrel by 09:51 ET (13:51 GMT), while U.S. West Texas Intermediate gained also 2% to $96.29 a barrel.
A spike well beyond current levels cannot be ruled out, according to Tamas Varga, analyst at PVM Oil Associates. "One must not rule out a pop above $150, if the conflict drags on," he told Investing.com, adding that in the event of a prolonged disruption, supply losses would exceed demand destruction.
"Alternative energy is not readily available in vast quantity to make up for the shortfall. Consequently, consumers will have no choice but to live with higher oil prices," Varga said.
While the U.S.-Iran negotiations have stalled, investors were monitoring reports that Iran has submitted a new proposal to reopen the Strait of Hormuz and end the war, which was first reported by Axios.
The offer also proposes deferring discussions over Iran’s nuclear program, a condition likely to meet resistance in Washington, which has demanded Tehran hand over its uranium stockpiles and cease all nuclear activities.
U.S. President Donald Trump cancelled a planned trip by American officials to Pakistan for Iran talks over the weekend, shortly after Iranian officials departed Islamabad. Trump had indefinitely extended a ceasefire with Iran earlier in April, but the two sides remain far apart.
Iran has called for the lifting of a U.S. naval blockade of Iranian ports, while Washington has insisted on a reopening of the Strait of Hormuz before any substantive peace talks can begin.
Varga warned that even a resolution to the conflict would not immediately ease market anxiety. "Even if the conflict ends today, the risk premium will remain elevated for a long period of time, even if the oil balance loosens considerably," he said.
The fragile Israeli-Lebanon ceasefire, he added, was already making investors uncomfortable, with the risk of renewed strikes on regional oil infrastructure a live concern should hostilities escalate again.