Oil Jumps Above $90 as US-Iran Tensions Escalate in Strait of Hormuz
US-Iran clashes in the Gulf drive oil above $90, with markets on edge over supply disruptions and central bank policy.
Global markets opened the week on a tense note as the United States and Iran exchanged fire in the Gulf region. US forces struck two missile launchers on Iran's Larak island in the Strait of Hormuz, while Tehran reportedly attacked US personnel in Jordan. Adding to the uncertainty, President Trump posted on social media that Iran's main oil terminal, Kharg Island, was being "blown to smithereens," though military officials did not confirm this claim.
Iran also appears to have used rockets to lay naval mines in the strait, a direct challenge to the US military, which had said last week that it had cleared the main shipping lane. Analysts note that Iran can repeat such actions from various points along its coastline, making it difficult for the US to keep the waterway fully secure.
As a result, Brent crude futures climbed 2.4% to trade back above $90 per barrel, putting pressure on equity markets. Asian stocks were mostly in the red, and European and US futures slipped 0.4% to 0.5%. Despite the disruption, Goldman Sachs estimates that Gulf oil exports are running at 15-16 million barrels per day (bpd), which is 7-8 million bpd below pre-war levels but 5-6 million bpd above the March trough. Reports suggest that some tankers are now sailing at night with transponders off, avoiding detection by tracking systems.
In a separate development, President Trump said that oil from a recently struck deal with Venezuela would be used to replenish the US Strategic Petroleum Reserve. Analysts, however, are skeptical, noting that it could take years—if ever—for Venezuelan production to rise meaningfully.
Meanwhile, bond markets remained under pressure. Japanese 10-year yields hit their highest level since 1996, following Friday's selloff in US Treasuries. Markets now imply a 70% chance that the Bank of Japan will raise rates at its September 18 meeting, with Treasury Secretary Scott Bessent offering not-so-subtle encouragement.
Central banks are in focus this week. New Zealand's central bank is widely expected to hike rates for a second straight meeting on Wednesday, while the Bank of Canada is seen holding steady due to the potential economic damage from a trade war with the US. Markets are also pricing in a rate hike from the European Central Bank at its September 10 meeting, and a 58% probability that the Federal Reserve will move on September 16.
G20 finance ministers and central bankers are meeting in North Carolina on Monday and Tuesday, with rates, bonds, and inflation expected to dominate discussions. The tone is likely to be hawkish given oil at $90 a barrel and no end in sight to the Gulf conflict.