Oil slips as diplomacy competes with rising Middle East shipping risks

Traders monitor conflict while awaiting US inventory data

Oil prices traded lower on Tuesday as markets assessed ongoing diplomatic efforts between Washington and Tehran alongside growing concerns that escalating tensions could threaten vital shipping routes used by global energy exporters.

At 04:53 ET (08:53 GMT), Brent crude futures fell 0.5% to $88.80 per barrel, while US West Texas Intermediate (WTI) crude declined 0.5% to $82.81 per barrel.

Both benchmarks had ended Monday’s session higher, with Brent closing at $89.22 per barrel after a 1.3% gain and WTI settling at $83.23 following a 0.9% increase. Brent had briefly climbed above the $90 mark after renewed military activity in the Middle East over the weekend.

Negotiations continue despite renewed attacks

Diplomatic efforts remain active as international mediators seek to restore the fragile ceasefire framework agreed in June.

Pakistani Prime Minister Shehbaz Sharif is holding discussions with Iranian Interior Minister Eskandar Momeni in Islamabad, while US Secretary of State Marco Rubio has indicated that Washington remains open to restarting negotiations.

Nevertheless, military activity continued across the region. Reports from the United Kingdom Maritime Trade Operations centre said a tanker was struck near the Strait of Hormuz off the coast of Oman, forcing the crew to abandon the vessel. Iran’s Islamic Revolutionary Guards Corps later claimed responsibility.

The United States also confirmed a tenth consecutive day of strikes against Iranian military targets, stating that the operations were intended to weaken Iran’s capability to threaten commercial shipping in the Strait of Hormuz.

Bab al-Mandab joins Hormuz as a growing market concern

Alongside uncertainty surrounding the Strait of Hormuz, investors are increasingly focused on the Bab al-Mandab Strait after Yemen’s Iran-backed Houthi movement threatened to block Saudi shipping.

The strategic waterway connects the Red Sea with the Gulf of Aden and carries roughly 12% of global trade, including significant volumes of crude oil exports.

“Vessels would have to take the much longer route through the Suez Canal and go around Africa. It’s yet to be seen how effective any blockade will be. But, clearly, this development will increase insurance costs,” ING analysts said.

“Looking at oil price action this morning, the market is not convinced that this blockade will be successful.”

Inventory reports remain the next catalyst

Analysts believe geopolitical uncertainty continues to provide support for oil prices, although expectations that previous regional conflicts ultimately avoided prolonged supply disruptions have limited further gains.

Markets now await the latest US crude inventory figures from the American Petroleum Institute, due later Tuesday, followed by official Energy Information Administration data on Wednesday.