Oil prices climbed to their highest levels in nearly four weeks Wednesday after the United Arab Emirates said it detected ballistic missiles launched from Iran and moved to suspend all trade and financial transactions with Tehran, deepening a standoff that has kept shipping through the Strait of Hormuz constrained for weeks.
Brent crude settled at $91.62 a barrel, up 60 cents or 0.7%, while U.S. West Texas Intermediate rose 89 cents, or 1.1%, to close at $85.83. Both benchmarks touched their highest marks since July 24 and have now gained more than 5% over the past five trading sessions, according to market data reviewed by Reuters.
The UAE's foreign ministry said "all trade, commercial exchanges, and financial transactions with Iran have been halted until further notice," a sharp escalation given the two countries' historically close commercial ties. Ship traffic through the Strait of Hormuz — the chokepoint through which roughly a fifth of global oil supply normally transits — has remained slow for weeks despite assurances from regional authorities that the waterway is open and that mines have been cleared.
Markets still pricing in some hope for de-escalation
Even with the latest flare-up, traders say prices have not moved as sharply as they might in a full supply-disruption scenario, a sign the market is still betting the conflict stops short of closing the strait outright.
"Markets have not completely lost hope for a deal, but confidence is clearly eroding."
Tim Waterer, chief market analyst, KCM Trade
Wednesday's move added to a run that has lifted crude by roughly 8% since the start of August, reversing a summer slide that had pushed Brent below $80. The rally has been a rare bright spot for energy stocks even as broader equity indexes wobbled this week on rising Treasury yields; the Energy Select Sector SPDR was among the better-performing sector funds Tuesday as the geopolitical premium built into crude.
Refiners and shippers are watching insurance costs as closely as headline prices. War-risk premiums for tankers transiting the Gulf have risen in step with the missile reports, according to shipping-industry trackers, adding to freight costs that are increasingly being passed through to buyers in Asia, the largest destination for Gulf crude exports.
What happens next
Energy traders are watching for any sign that Abu Dhabi's move prompts retaliation or further restrictions from Tehran, which could tighten the squeeze on Hormuz traffic further. A closely watched U.S.-mediated framework aimed at de-escalating the broader conflict remains unresolved, and analysts say oil prices are likely to stay volatile heading into the weekend as officials in Washington, Abu Dhabi and Tehran calculate their next moves.
