Key insights
- Oil prices surged due to escalating tensions in the Middle East after attacks on a critical UAE energy hub. This disruption in oil supply, coupled with existing geopolitical fragility, is likely to contribute to inflationary pressures, indirectly impacting US equities. The market will closely watch for further escalation and its effect on energy prices.
Investing.com -- Oil prices surged on Monday as tensions escalated in the Middle East. Iran claimed to hit a U.S. navy ship while Washington said it had safely helped two vessels transit the Strait of Hormuz.
Meanwhile, the United Arab Emirates (UAE) said Iran had launched a missile and drone attack that caused a fire at a critical energy hub.
At 13:39 ET (17:39 GMT), Brent oil futures for July delivery, the global benchmark, jumped 5.4% to $113.97 a barrel, while West Texas Intermediate crude futures for June delivery added 3.5% to $105.51 a barrel.
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The UAE’s ministry of defense on Monday said it had intercepted missile and drone attacks from Iran, an action that the foreign ministry "strongly" condemned. The attacks caused a fire at the Fujairah Oil Industry Zone (FOIZ), a massive oil trading and storage hub located in the emirate of Fujairah.
The Fujairah Media Office said three Indian nationals had sustained moderate injuries in the attack and had been transferred to a hospital for treatment.
The FOIZ sprawls across 12.8 million square meters and has the Middle East’s largest commercial storage capacity for refined oil products. It is also one of the termination points for a key pipeline that allows the country to transport crude while bypassing the Strait of Hormuz entirely.
The UAE last week said it would be leaving the Organization of the Petroleum Exporting Countries (OPEC) in a move that was seen as a major blow to the global oil cartel. OPEC+ on Sunday said the cartel will increase oil output by 188,000 barrels per day in June.
The situation in the Middle East was already fragile before the attack on UAE, as tensions were renewed between the U.S. and Iran.
President Donald Trump over the weekend said the U.S. would begin an effort called "Project Freedom" from Monday to guide ships stranded in the Strait of Hormuz. He provided few actual details on the plan, but said his representatives were “having very positive discussions” with Iran.
Separately, U.S. Central Command said it would support the move with over 100 land and sea aircraft, as well as 15,000 service members.
Traffic through the vital conduit for a fifth of the world’s oil has been effectively shuttered by Iran since the start of the conflict, leading to the biggest supply disruption in history.
Iran’s state media said missiles had been fired upon U.S. destroyers approaching the strait, and that two of them struck a navy ship. U.S. Central Command dismissed the latter claim, saying no ships had been struck, and instead said two U.S. merchant ships had successfully transited the strait.
"No commercial vessels or oil tankers have passed through the Strait of Hormuz in the past several hours, and the claims made by U.S. officials are baseless and completely false," Iran’s Islamic Republic News Agency (IRNA) said, citing the Iranian Revolutionary Guards.
Separately, Reuters reported that there was a fire and an explosion on a South Korean-flagged vessel in the strait, citing the foreign ministry in Seoul.
Trump told Fox News on Monday that Iran will be "blown off the face of the earth" if they attack U.S. vessels engaged in Project Freedom.
"Iran has taken some shots at unrelated Nations with respect to the Ship Movement, PROJECT FREEDOM, including a South Korean Cargo Ship. Perhaps it’s time for South Korea to come and join the mission!" the president later said on social media.
Trump added that the U.S. had shot down seven small Iranian boats and that, other than the South Korean ship, there had been "no damage going through the Strait."
Concerns over oil supply disruptions extended beyond the Middle East on Monday, after Ukraine launched a wave of drone attacks on targets across Russia on Sunday.
Ukraine struck the Baltic Sea port of Primorsk, while also attacking a number of vessels and energy infrastructure in the area.
Ukraine has repeatedly targeted Russian oil infrastructure as a means of cutting off Moscow’s revenue stream and limiting its war efforts.
Senad Karaahmetovic, Ambar Warrick, and Scott Kanowsky contributed to this article