Oil markets moved sharply higher on Monday, with crude prices rising more than 3% after renewed military action between the United States and Iran and an escalation of Israeli operations in Lebanon heightened concerns over energy supplies from the Middle East.
By 07:01 GMT, U.S. crude futures had gained $2.88, or 3.3%, to trade at $90.24 per barrel. Brent crude futures advanced $2.78, or 3.05%, reaching $93.90 per barrel.
Renewed Conflict Undermines Ceasefire Expectations
The latest escalation reduced investor confidence that Washington and Tehran are close to extending their existing ceasefire arrangement.
Market sentiment had improved late last week following diplomatic efforts, including U.S.-hosted talks between Israeli and Lebanese representatives on Friday. Optimism surrounding a potential ceasefire extension had contributed to declines of 1.8% in Brent crude and 1.7% in WTI on Friday.
However, the renewed exchange of military strikes has cast fresh doubt on the prospects for a near-term agreement.
U.S. and Iran Exchange Fresh Strikes
The United States announced on Sunday that it had carried out “self-defence strikes” against radar installations and drone-control facilities located in Iran’s Goruk region and on Qeshm Island.
Washington said the attacks were conducted in response to what it described as “aggressive” actions by Tehran.
In response, Iran’s Islamic Revolutionary Guard Corps stated on Monday that its aerospace division had targeted an air base allegedly involved in a U.S. strike against a telecommunications tower on Sirik Island.
The developments marked another escalation in a conflict that continues to influence global energy markets.
Ceasefire Proposal Remains Under Review
President Donald Trump said on Friday that he would soon decide whether to support a proposed agreement designed to extend the ceasefire first announced in early April.
The objective of the proposal is to provide negotiators with additional time to pursue a permanent resolution to the conflict and address longstanding disagreements over Iran’s nuclear programme.
Any future agreement is expected to require support from Israel, while Iran has repeatedly insisted that Hezbollah must also be included in any comprehensive arrangement.
According to a U.S. official, Washington has proposed a “gradual de-escalation” framework under which Hezbollah would halt attacks on Israel in exchange for Israel refraining from expanding military operations in Beirut.
Strait of Hormuz Remains a Major Concern
Investors continue to focus on developments in the Strait of Hormuz, one of the world’s most important energy transit routes.
IG analyst Tony Sycamore noted that concerns are increasing over the presence of naval mines in the waterway, which could delay the full restoration of shipping activity even if diplomatic progress is achieved.
“Even if an agreement is reached, it won’t deliver a flood of supply,” Sycamore said.
Reports have suggested that Iran deployed additional mines in the strait earlier in the week. An Axios journalist wrote on X on Friday that the activity occurred shortly after U.S. Defense Secretary Pete Hegseth warned that any further attempts to place mines would violate the terms of the ceasefire.
The Strait of Hormuz handles roughly one-fifth of global oil and natural gas shipments, and Iran has effectively restricted traffic through the route since hostilities began following U.S. and Israeli strikes on February 28.
Supply Risks Outweigh Weak Chinese Economic Data
Concerns over potential supply disruptions continued to dominate market sentiment despite economic data from China indicating that manufacturing activity remains under pressure.
The figures added to concerns that growth in the world’s second-largest economy is losing momentum as exports weaken and businesses face ongoing cost pressures.
Under normal circumstances, weaker Chinese demand would weigh on oil prices. However, traders remained more focused on geopolitical developments and the risk of tighter global energy supplies.
Goldman Sachs Highlights Demand Risks
Analysts at Goldman Sachs said on Sunday that weaker-than-expected oil demand from both China and Europe represents a significant downside risk to their commodity forecasts.
The bank currently projects Brent crude will average $90 per barrel during the fourth quarter, while WTI is expected to average $83 per barrel.
However, Goldman Sachs noted that any further disruption to Middle Eastern energy supplies could still push oil prices beyond those projections.