Crude prices climbed after President Donald Trump signaled that diplomatic efforts with Iran are running out of runway, pushing Brent crude near $105 a barrel and West Texas Intermediate to roughly $99.
Trump described the ceasefire as being on “massive life support” and called Iran’s response to recent proposals unacceptable.
What Trump actually said, and why oil cares
The Strait of Hormuz sits at the center of this anxiety. Roughly a fifth of the world’s oil supply passes through that narrow waterway between Iran and the Arabian Peninsula. Any escalation between Washington and Tehran raises the probability that tanker traffic through Hormuz could face threats, whether from direct military action, proxy interference, or the kind of ambiguous maritime incidents that have a way of happening when tensions spike in the Persian Gulf.
The market’s risk calculus
Analysts at Bloomberg Economics aren’t painting an optimistic picture. Their assessment suggests the US and Iran are more likely to resume strikes than reach a peaceful resolution. The forecast points toward any outcome settling into a lower-level conflict rather than producing a comprehensive peace agreement.
Look at Brent’s prompt spread for a useful signal. The prompt spread, which measures the price difference between the nearest two futures contracts, narrowed to around $4 a barrel. Earlier last month, that same spread was nearly $10 in backwardation. A spread compressing from $10 to $4 tells you the physical market isn’t as strained as it was a few weeks ago, yet prices are still climbing, which means the geopolitical risk premium is doing most of the heavy lifting right now.
What this means for investors
If this is the prelude to renewed military action, Bloomberg Economics’ assessment that strikes are more likely than peace should not be dismissed lightly. Any disruption to Strait of Hormuz shipping lanes would create a supply shock that dwarfs the current risk premium baked into prices.
For energy investors, crude is currently trading above where fundamentals alone would place it, carried by geopolitical uncertainty. A single tweet or press conference can move the needle by several dollars per barrel when the market is in this mode.