Brent crude nears $95 as Iran war cuts Gulf flows by 13M bpd

Brent crude rose 2.2% to $91.17 a barrel on Tuesday before extending gains above $93, while West Texas Intermediate climbed to $84.95, as a ceasefire that briefly reopened the Strait of Hormuz collapsed under renewed U.S.-Iran bombing campaigns.

"The market is now short 13.4 million barrels a day of Persian Gulf flows, a gap that would likely force either sharper demand destruction or renewed inventory draws unless tensions cool soon," Goldman Sachs analysts wrote in a note this week.

Gulf exports had clawed back to more than 80% of pre-war levels in the first two weeks after the June detente, according to Investing.com data. Renewed attacks on tankers have since pulled flows back below 11 million barrels a day, or less than 50% of pre-war levels. Saudi Arabia and the United Arab Emirates, which operate the biggest tanker fleets in the region, did most of the heavy lifting on the rebound before the latest escalation halted the recovery.

The supply squeeze threatens to reignite inflation just as the Federal Reserve was positioning for rate cuts. Every $10 move in crude works its way into gasoline, diesel and jet fuel within weeks, complicating the central bank's path toward lower borrowing costs and raising the stakes for the next policy meeting.

War costs mount as fighting widens

Defense Secretary Pete Hegseth told the Senate Appropriations Committee on Tuesday that the conflict has cost $37.5 billion so far, as he made the case for Trump's $87.6 billion supplemental funding request. Seventeen U.S. service members have died and more than 100 have been injured since early July, according to the Pentagon.

The disruption extends beyond the Strait of Hormuz. The Caspian Pipeline Consortium stopped accepting oil from Kazakhstan after suspending loadings due to tanker attacks at its Black Sea terminal, three industry sources told Reuters. Yemen's Iran-aligned Houthi militia warned shipping companies to avoid Saudi ports, causing at least three tankers carrying Saudi crude to China and India to reverse course in the Red Sea.

The last time Gulf flows were disrupted at this scale was during the opening weeks of the conflict in late February, when crude briefly touched $120 a barrel before the interim ceasefire took hold. That deal collapsed in early July, and the resumption of daily bombing has since widened the conflict to include Houthi naval blockades and attacks on infrastructure in both countries. The International Energy Agency said its member countries still hold substantial emergency oil stocks despite the largest coordinated release of strategic reserves on record.

Three scenarios for oil

Goldman sketched a wide range of outcomes. Its base case holds Brent at $80 a barrel for the fourth quarter of 2026 and $75 for 2027, assuming Gulf flows normalize. In an upside scenario, prices overshoot $110 this quarter if the blockade hardens and shippers continue to steer clear. A downside case sees crude sliding into the $60s by year-end if production beats forecasts and demand recovers slowly.

The cross-asset impact is already visible across markets. The U.S. dollar climbed for a fourth straight session on Tuesday as higher energy costs stoked inflation concerns. Gold rose to a near two-week high as investors hedged against geopolitical risk. AI-linked stocks on Wall Street managed to push higher despite the macro headwind, while Japan's imports jumped to a record high in June as a weak yen and soaring oil prices drove up import costs, complicating the Bank of Japan's policy path.

For consumers, the transmission is direct. Every $10 move in crude adds roughly 25 cents to a gallon of gasoline within two to three weeks, according to industry estimates. Alaska Air Group on Tuesday forecast third-quarter results below estimates, saying it expects to recover only about half of its higher fuel costs at current prices. The airline's large Hawaii operation leaves it more exposed to elevated Singapore refining margins, making this year's fuel shock more damaging for it than for larger rivals.

The range of outcomes reflects the uncertainty around whether negotiators can pull the strait back from the edge. Iran has so far refused to loosen its grip over the waterway, and Trump told reporters Tuesday that the U.S. has "no interest" in talks until Tehran is ready to meet "in a meaningful way." Gen. Dan Caine, chairman of the Joint Chiefs of Staff, acknowledged the limits of airpower alone, telling senators that "Iran will continue to be a challenge moving forward."

This article is for informational purposes only and does not constitute investment advice.