Crude oil prices experienced a significant rise this week, driven by escalating tensions in the Middle East, with Brent crude settling at $96.78 a barrel on Friday, marking a nearly 10% weekly gain. Meanwhile, China has stepped in to mediate the ongoing U.S.-Iran conflict, which has disrupted oil shipments through key maritime routes.
Earlier in the week, oil prices surged as the United States and Iran exchanged missile strikes, leading to a significant reduction in shipping through the Strait of Hormuz. Yemen's Houthis also launched attacks on vessels in the Red Sea, further exacerbating supply concerns. Brent crude, which had closed above $100 in the previous session for the first time since May, fell by $3.91 or 3.88% on Friday. U.S. West Texas Intermediate crude ended the session at $89.31 a barrel, down $2.88 or 3.12%, but still on track for an 8.27% weekly increase.
Pakistan is exploring ways to facilitate the stalled U.S.-Iran negotiations, following an initiative from China. This move comes amid a naval blockade announced by Yemen's Iran-backed Houthi movement against Saudi Arabia, a key ally of Pakistan. Islamabad's diplomatic balancing act is crucial, given its reliance on financial support from both Saudi Arabia and China.
“Any strike on major Gulf export infrastructure could force a retest of $95-100 and beyond.”
Anindya Banerjee, Head of Commodity Research at Kotak Securities
Tensions remain high as U.S. President Donald Trump has vowed significant military action against Iran and its Houthi allies after attacks on Saudi oil tankers. Iran has been urging the Houthis to close the Bab el-Mandeb gateway if U.S. attacks continue. The closure of this route, the second most important energy shipment passage after the Strait of Hormuz, has heightened supply concerns.
Kazakhstan's energy ministry reported a temporary cut in oil output due to suspected Ukrainian drone attacks, adding to the global supply worries. Analysts from JPMorgan and Goldman Sachs have projected further price increases if disruptions persist, with Brent potentially reaching $120 a barrel.
Anindya Banerjee, Head of Commodity Research at Kotak Securities, noted that geopolitical developments are once again driving crude oil prices. "Any strike on major Gulf export infrastructure could force a retest of $95-100 and beyond," he said.
Background
The current geopolitical situation underscores the volatility in global oil markets, with the Middle East tensions posing significant risks to energy supply chains. The involvement of major powers like China in mediating the conflict highlights the global stakes involved.
Looking ahead, the focus will be on diplomatic efforts to de-escalate tensions in the Middle East. Market participants will closely monitor developments in U.S.-Iran negotiations and the impact on oil supply routes, which could significantly influence crude prices in the coming weeks.
