Oil costs surged on Thursday to their highest reading in nearly seven months, with investors flocking to safe-haven assets like gold as the friction between the United States and Iran intensifies.
Brent crude, setting the global benchmark, advanced by 1.86% to reach $71.66 per barrel. American oil saw a rise of 1.9%, hitting $66.43 a barrel. This increase followed a more than 4% jump on Wednesday, marking the largest single-day leap since October.
Gold, traditionally viewed as a hedge against uncertainty, climbed 2% on Wednesday, reclaiming the $5,000 per troy ounce level. Prices for gold experienced some fluctuation but managed a 0.2% gain on Thursday.
US and Iranian ambassadors have been meeting in Geneva in recent days to discuss Iran’s nuclear program. US Vice President JD Vance stated on Tuesday that Iranian negotiators were disregarding certain “red lines” set by President Donald Trump during the talks.
These discussions are taking place while the US has moved military assets closer to the Middle East. The prospect of a confrontation in Iran has amplified concerns regarding potential disruptions to the worldwide supply of oil, leading to corresponding spikes in petroleum prices.
“The renewed geopolitical tensions between the US and Iran are now clearly reflected in the prices,” noted Daniela Hathorn, a senior market analyst at Capital.com, in a memo.
In recent weeks, gold had been behaving more like a meme stock than a safe haven, characterized by significant price swings and volatility. However, escalating tensions in the Middle East spurred a fresh push for haven assets, propelling the metal’s price above the $5,000 threshold.
As US-Iran antagonism builds, attention naturally shifts to the Strait of Hormuz. This narrow maritime passage off the coast of Iran is an absolutely vital chokepoint for the transmission of global oil supplies.
According to the US Energy Information Administration, approximately 20 million barrels of oil transit this strait daily, which accounts for 20% of global oil consumption.
“The latest price movement signals the market is baking in an already evident geopolitical risk premium, with the world’s crucial oil artery once again situated within the conflict zone,” stated Ole Hansen, Head of Commodity Strategy at Saxo Bank, in a note.
In the last few days, Iranian media reported that Iran partially closed the Strait of Hormuz for scheduled naval exercises.
Markets typically tend to overlook geopolitical friction. However, this trend is beginning to reverse when geopolitical conflict poses a direct threat to the global oil market, impacting consumer expenses and corporate strategy worldwide.
Venezuela, for instance, is not significant enough in the global oil market for the US stance against Nicolás Maduro to cause market alarm. Conversely, investors are becoming cautious regarding Iran due to its proximity to the critical chokepoint for the worldwide market.
“In energy markets, probabilities matter, especially when potential disruptions involve a large oil producer and a vital global transit route,” explained Hathorn of Capital.com.
“Oil markets are beginning to price in a higher risk premium as Iran remains a major producer and, crucially, sits at the heart of the Strait of Hormuz,” she added. “Even restricted interruptions or credible threats to shipping lanes could cause an immediate supply shock.”
The Strait of Hormuz is fundamental to Iran’s oil exports, and any interruption in the flow of crude would complicate the export business for Iran itself, as well as for nations like China that procure much of their oil from Iran.
The potential for a conflict in Iran is raising alarms about oil supply shocks, which could trigger rapid price increases. Higher oil prices, in turn, could inflate consumer costs and fuel inflation.
“In a more immediate scenario, strikes against Iran could lead to a sharp spike in oil prices and accelerate inflation across numerous nations, slowing the pace or extent of interest rate cuts by major central banks,” wrote analysts at Capital Economics in a memo.
US stocks concluded Thursday in negative territory. The Dow retreated by 268 points, or 0.54%. The S&P 500 index dipped by 0.28%, while the tech-heavy Nasdaq Composite fell by 0.31%.
“Given that inflation and affordability are top-of-mind concerns for the White House, ensuring the flow through the Strait of Hormuz must be a priority—meaning a diplomatic solution, or failing that, a military plan that protects oil flow as much as possible,” Dennis Fallmer, Chief Investment Officer at Montis Financial, commented in a note.
When conflict erupted between Israel and Iran in June, and the US conducted strikes on Iranian nuclear sites, oil prices sharply escalated. Correspondingly, there were fears that Iran might close the Strait of Hormuz—fears that ultimately did not materialize. Following the US strikes and as the conflict de-escalated, oil prices subsequently eased.
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