Oil prices moved sharply higher on Monday after renewed military action between the United States and Iran, combined with expanded Israeli operations in Lebanon, raised concerns over the stability of energy supplies from the Middle East.
By 07:01 GMT, U.S. crude futures had advanced $2.88, or 3.3%, to $90.24 per barrel, while Brent crude futures gained $2.78, or 3.05%, to trade at $93.90 per barrel.
Market Optimism Over a Ceasefire Extension Fades
The latest outbreak of hostilities weakened expectations that Washington and Tehran could soon announce an extension to their existing ceasefire agreement.
Investor sentiment had improved at the end of last week following diplomatic initiatives, including U.S.-brokered discussions between Israel and Lebanon on Friday. Those developments helped push Brent and WTI prices lower by 1.8% and 1.7%, respectively, in the previous session.
However, the renewed military confrontation has once again shifted attention toward geopolitical risks and the possibility of prolonged instability in the region.
Washington and Tehran Exchange Military Responses
The United States confirmed on Sunday that it had launched “self-defence strikes” against radar facilities and drone-command infrastructure located in Iran’s Goruk area and on Qeshm Island.
U.S. officials said the action was taken in response to what they described as “aggressive” behaviour from Tehran.
Iran’s Islamic Revolutionary Guard Corps responded on Monday, announcing that its aerospace forces had targeted an air base allegedly connected to a U.S. strike on a telecommunications facility on Sirik Island.
The exchange marked another escalation in tensions between the two countries and reinforced concerns over the wider regional conflict.
Negotiations Continue Despite Ongoing Tensions
President Donald Trump said on Friday that he was reviewing a proposed agreement that could prolong the ceasefire first announced in early April.
The proposal is intended to create additional time for negotiators to work toward a lasting settlement and address the long-running dispute surrounding Iran’s nuclear programme.
Any eventual agreement is expected to require support from Israel, while Iranian officials have repeatedly maintained that Hezbollah must also be included in any broader arrangement.
According to a U.S. official, Washington has put forward a “gradual de-escalation” proposal under which Hezbollah would suspend attacks on Israel in return for Israel avoiding further military escalation in Beirut.
Hormuz Supply Risks Remain in Focus
Developments in the Strait of Hormuz continue to be closely watched by energy traders and investors.
Tony Sycamore, an analyst at IG, noted that growing concerns over naval mines in the strategic waterway could slow efforts to fully restore shipping traffic, even if a diplomatic agreement is eventually reached.
“Even if an agreement is reached, it won’t deliver a flood of supply,” Sycamore said.
Reports suggest that Iran deployed additional mines in the strait earlier in the week. An Axios journalist reported on X that the move came shortly after U.S. Defense Secretary Pete Hegseth warned that laying further mines would breach the ceasefire arrangement.
The Strait of Hormuz carries roughly 20% of global oil and natural gas shipments and has faced significant disruption since the conflict intensified following U.S. and Israeli strikes on February 28.
Chinese Economic Weakness Overshadowed by Supply Concerns
Oil markets largely ignored disappointing economic indicators from China, which pointed to continued weakness in manufacturing activity.
The data added to concerns that the world’s second-largest economy is losing momentum amid weaker exports and ongoing cost pressures on businesses.
Nevertheless, worries about potential supply disruptions in the Middle East outweighed concerns about softer demand, allowing oil prices to move higher despite the weaker economic backdrop.
Goldman Sachs Warns of Demand-Driven Downside Risks
Goldman Sachs analysts said on Sunday that slower-than-expected oil consumption in both China and Europe could pose a meaningful downside risk to the bank’s current price forecasts.
The investment bank expects Brent crude to average $90 per barrel during the fourth quarter and forecasts WTI at an average of $83 per barrel.
However, the analysts also noted that further disruptions to energy exports from the Middle East could still drive crude prices above those projected levels.
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