Iran ceasefire’s end drives up oil prices and uncertainty

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The end of the U.S.-Iran ceasefire is driving oil prices higher and fueling uncertainty over future energy prices.

On Tuesday and again Wednesday, the U.S. said it was striking Iran in retaliation for attacks on three commercial ships in the Strait of Hormuz.

President Trump, speaking at the NATO summit in Turkey, declared that the ceasefire that ended months of conflict was “over” and said that negotiating with Iran was a “waste of time.”

By Wednesday evening, the price of crude oil had jumped significantly higher than where it was at the start of the week. U.S. benchmark WTI was trading at about $75 per barrel, while international benchmark Brent Crude was trading at $79, up from about $69 and $72, respectively, on Monday.

While these prices are significantly higher than they have been in recent days, they’re still well below peaks seen at the height of the war, when they neared $120 per barrel.

That’s because traders are waiting to see what actually happens next.

Robert Weiner, professor of international business at George Washington University, said that the market is pricing in “a slightly increased chance of problems in exporting oil” but added that he wouldn’t be surprised “if tomorrow or the next day there’s more news that lessens the effects of this.”

Over the next few days, prices are expected to “continue to creep up,” said Ken Medlock, a fellow in energy and resource economics at Rice University’s Baker Institute.

But, he added, whether or not prices climb dramatically will depend on whether shipments are able to make it through the Strait of Hormuz, a key oil shipping chokepoint off Iran’s coast.

In the meantime, Medlock said he expects to see a “risk premium” priced into oil.

During the war, Iran’s closure of the strait created a supply crunch that drove prices higher. The recent ceasefire agreement said that Iran would open up the waterway for oil shipments.

It also included a lifting of U.S. sanctions on Iranian oil, a move that has been reversed amid the latest back-and-forth.

Medlock also noted that the recent strikes have been relatively low-level, but that an escalation of the conflict could send prices even higher.

He described the strikes on Iranian boats as “very targeted.”

“They’re not civilian infrastructure, they’re not even energy infrastructure. It’s really stuff that allows the U.S. … to continue to escort traffic through the Strait of Hormuz and give assurances to shippers that the ability for Iran to actually strike ships as they move through the strait is severely diminished,” he said.

“Now, if the Iranian response is to radically escalate, and then the U.S. also radically escalates by expanding strikes beyond just that type of infrastructure, that’s when traffic could shut down and price could go way up,” Medlock added.

Other experts also said that oil prices, while up, had not risen dramatically on Tuesday and early Wednesday because Trump’s comments may be perceived as a negotiating tactic rather than an actual declaration that talks would cease.

“The market has been used to this rhetoric over the past several months,” said Vincent Piazza, Bloomberg Intelligence senior equity analyst.

“I see this as more rhetoric in order to gain leverage to get a deal,” Piazza added, saying he’s “optimistic.”

Meanwhile, Tom Kloza, chief oil analyst at Gulf Oil, noted that during the course of the conflict with Iran, Trump has been effective at talking down the price of oil.

“If anything, there’s a geopolitical discount because nobody sees safety in being long when the president can say something and send it down $5 in a heartbeat,” he said, referring to the price of oil.

Meanwhile, prior to the latest escalation, gasoline prices had been trending downward, as they slowly adjusted following oil’s descent to near pre-war prices.

However, if oil rises, the price of gas could follow it.

On Wednesday, the national average gasoline price was about $3.80 per gallon, up nearly a cent from Tuesday. This is still well above where prices were before the start of the war, when the nation averaged under $3, but significantly below the conflict high of around $4.50.

Kloza said he expects “modest increases” in gas prices.

If the escalation conflict sends gas prices back up, that could spell trouble for Republicans in this year’s midterm elections.

“Energy prices have been higher for months now, and now are on the rise again. All of this makes it tougher for Republicans on the ballot to talk about what voters are saying is most important to them — lowering prices,” said Republican strategist Doug Heye in an email.

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