Oil edged higher after US and Iranian forces appeared to square off in the sea and air, heightening concerns about an escalation in tensions.
West Texas Intermediate rose to settle above $63 a barrel after an Iranian drone approached an American aircraft carrier in the Arabian Sea and was shot down. The episode restored some geopolitical risk premium that had ebbed in recent days amid signs Washington was softening its stance on Tehran.
Futures pared some gains after White House Press Secretary Karoline Leavitt said US President Donald Trump wants to pursue diplomacy “first” with Iran. Prices advanced in post-settlement trading, rising as much as 3.3%.
The development came hours after an oil tanker that is part of a US military fuel procurement program was hailed by Iranian ships in the Strait of Hormuz, evincing renewed risks to maritime traffic in the region. Tanker rates have soared in recent days over concerns about the Hormuz chokepoint through which about one-third of the world’s oil flows.
The events underscore how recent US moves toward diplomacy with Iran reflect not a desire to deescalate but a calculation that Washington has sufficient leverage to strong-arm Tehran into a nuclear agreement, among other demands, according to Gregory Brew, geopolitical analyst at the Eurasia Group. He estimates that a $3 to $5 risk premium is currently baked into prices.
Leavitt’s comments are likely an attempt “to brush off efforts by the Iranians to destabilize the environment, because the environment right now is favorable to the US,” Brew added.
Still, Tuesday’s episode whipsawed investors who had been watching moves that suggested the US was steering clear of military strikes on the country over its nuclear program and handling of recent protests. Trump earlier said talks could begin within days after Tehran signaled it was ready to engage. Iranian media said a US carrier strike group in the region had moved further away from the country toward Yemen.
In another boon to prices, Trump earlier said he would roll back tariffs on India in return for an agreement that Prime Minister Narendra Modi would stop buying Russian oil, although that was not confirmed by New Delhi. Shipments of Moscow’s crude to Indian ports have tumbled toward the lowest in more than three years, contributing to a growing pool of unsold sanctioned barrels across the globe.
Crude surged last month despite widespread concerns that the market faces a global glut, with prices supported by geopolitical concerns and interruptions to some supplies, including from Kazakhstan. The rally faltered on Monday as oil was caught up in a major retreat from commodities, especially metals.
Oil Prices
WTI for March delivery added 1.7% to settle at $63.21 a barrel in New York.
Brent for April settlement gained 1.6% to settle at $67.33.
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