A fresh round of tit-for-tat strikes between Washington and Tehran around the Strait of Hormuz has sent crude toward $100 a barrel, with Bank of England and Chinese producer-price data signaling the energy shock is feeding through to global inflation.
Brent crude climbed 1.55 percent to $99.44 a barrel in early trading Wednesday, while US benchmark West Texas Intermediate rose 1.75 percent to $94.66, after Iran's Islamic Revolutionary Guard Corps said it struck two US vessels and eight oil tankers in the Persian Gulf in retaliation for American strikes on five Iranian crude carriers.
"Oil prices breaking above $120 are absolutely possible," said Daan Struyven, co-head of global commodities research at Goldman Sachs, on CNBC's "Squawk Box Asia." He flagged that sustained attacks on shipping and disrupted Gulf exports could drive Brent well above current levels.
The jump followed US Central Command's confirmation that it destroyed five Iranian oil tankers after the IRGC twice fired ballistic missiles at a US Navy warship over the past two days, attacks the Pentagon said were evaded without American casualties. The tit-for-tat exchanges have put the Strait of Hormuz, which handles roughly a fifth of global seaborne oil trade, back at the center of supply risk.
The escalation is feeding inflation concerns across two of the world's largest economies. Bank of England Governor Andrew Bailey told the UK House of Commons on Tuesday that inflation risks are tilted to the upside because energy prices are higher and could rise further, while China's August producer price index came in above expectations on rising commodity costs.
A tit-for-tat spiral around a vital chokepoint
The IRGC said its naval forces targeted the vessels in response to "US aggression," and separately claimed to have struck 10 ships that tried to enter what it called a "prohibited and unsafe" area of the strait. Iran's Tasnim news agency reported a tanker hit near Kharg Island, with crews evacuated and no casualties reported, while state broadcaster IRIB said two tankers were attacked near the port of Jask.
Jordan said 20 ballistic missiles were fired from Iran toward its territory overnight, aimed at a US base in Azraq. Jordanian air defenses intercepted and destroyed 18 of them, with the remaining two landing away from populated areas and no casualties reported. Iran also threatened to target tankers near ports in Kuwait and Bahrain, widening the geographic scope of the confrontation.
US Secretary of State Marco Rubio, speaking during a visit to Colombia, warned that further Iranian attacks on American naval vessels would draw additional responses. "Every time Iran tries to attack US Navy ships, it will lose tankers," Rubio said, according to Reuters. The Trump administration continues to pressure Tehran through economic sanctions even as the two sides trade strikes around the waterway, despite an earlier memorandum to reopen the strait as a prelude to a wider peace deal.
Inflation risk ripples beyond energy markets
The oil shock arrives as central banks weigh how much of the commodity move to look through. Bailey's warning marks a shift toward a more hawkish framing at the Bank of England, where higher energy costs complicate the path back to the 2 percent target. In China, the PPI beat adds to evidence that commodity inflation is filtering through producer prices, even as consumer demand remains soft.
The last comparable spike in Gulf risk premiums came during the 2019 tanker attacks near the strait, when Brent jumped more than 14 percent in a single session before retreating as supply proved resilient. The current episode differs in that both sides are now striking each other's vessels directly, raising the odds of a prolonged disruption rather than a one-off scare.
If attacks on shipping continue and Gulf exports stay disrupted, Goldman's Struyven sees Brent breaking above $120 a barrel. If the confrontation de-escalates quickly, the risk premium embedded in crude could unwind just as fast, easing the inflation pressure that has pushed Bailey and Beijing policymakers toward a more cautious stance. The next data point for markets is whether Iran follows through on its threat to strike tankers near Kuwait and Bahrain, which would mark a further widening of the conflict.
This article is for informational purposes only and does not constitute investment advice.
