Oil Prices Exceed $108 as US Plan for Hormuz Stokes Conflict Fears

Oil prices climbed Monday as traders weighed a new U.S. plan to guide ships from the Strait of Hormuz against the risk of direct military confrontation with Iran.

Brent crude futures for July delivery rose 0.06 percent to $108.23 a barrel after the White House announced "Project Freedom," a plan to restore navigation in the vital waterway starting Monday. The move, intended to release some 2,000 stranded vessels and 20,000 seafarers, was met with an immediate threat from Tehran, adding to the geopolitical risk premium that has kept oil above $100 since the war with Iran began on February 28.

"'For the good of Iran, the Middle East, and the United States, we have told these Countries that we will guide their Ships safely out of these restricted Waterways,' former President Donald Trump wrote on Truth Social, framing the operation as a humanitarian gesture while warning that any interference would be 'dealt with forcefully.'"

The market’s reaction was mixed, reflecting deep uncertainty over whether the plan would de-escalate the crisis or trigger a wider conflict. While the international benchmark Brent edged higher, U.S. West Texas Intermediate (WTI) futures for June slipped 0.10 percent to $101.84 a barrel. The split underscores the logistical chokehold on global supply; even as OPEC+ plans a 188,000 barrel-per-day output increase for June, the physical barrels remain trapped behind the de facto blockade.

The operation puts U.S. forces on a direct collision course with Iran, which controls the strait that handles nearly 20 percent of global oil shipments. Iran's military warned it would strike any foreign forces approaching the waterway, according to its state-run Mehr news agency. The threat raises the stakes for a fragile three-week ceasefire as diplomatic talks mediated by Pakistan show little sign of a breakthrough.

A High-Stakes Naval Gamble

U.S. Central Command confirmed it would support "Project Freedom," which it described as a joint State and Defense Department initiative under the banner of the Maritime Freedom Construct. A U.S.-led maritime task force, the Joint Maritime Information Center, has already established an "enhanced security area" and advised commercial vessels to use Oman's territorial waters, south of the normal shipping routes, as a safer alternative.

This carefully worded guidance stops short of a direct military escort, but Iran’s response was unambiguous. Major General Ali Abdollahi, a senior military commander, stated that any attempt by the U.S. military to approach or enter the waterway would be met with force. The credibility of that threat was underscored by an attack on an unidentified cargo ship near the strait on Sunday, which the British military’s maritime monitor reported involved multiple small craft.

Diplomatic Deadlock and Stranded Supply

The military maneuvering comes as diplomacy falters. Tehran is reviewing a U.S. response to its 14-point proposal for a 30-day path to end the war. Iranian officials, cited by the Mizan news agency, have stressed the talks are not about their nuclear program—a core U.S. priority—which they want to address at a later stage. With an estimated 20,000 seafarers from nations like India running low on supplies, the humanitarian and economic pressures are mounting daily.

The ongoing closure of the strait has also effectively neutralized recent supply increases from OPEC+. The cartel and its allies agreed to their third consecutive monthly output hike for June, but the additional barrels cannot reach global markets. This physical constraint is the primary driver keeping prices elevated, fueling global inflation and complicating policy for major importers like India, which could see its current account deficit widen under sustained high energy costs.

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