Oil Prices Surge Nearly 2% Amidst Prolonged U.S.-Iran Tensions and Strait of Hormuz Blockade

Oil markets pushed higher Tuesday, with prices gaining close to 2% thanks to a deadlock in talks aimed at resolving the conflict between the U.S. and Iran. The strategic Strait of Hormuz, a critical artery for oil flows, remains largely shut, keeping a sizable chunk of Middle East output out of global circulation.

President Donald Trump expressed dissatisfaction with the latest Iranian peace proposal, which notably sidestepped key issues like Tehran's nuclear program until hostilities cease and maritime disputes in the Gulf are resolved. This impasse prolongs uncertainty in a region responsible for about one-fifth of the world's oil and gas consumption.

Brent crude futures for June delivery were up $2.32, or 2.1%, trading just above $110 a barrel by early European hours, extending the previous session's rally. Meanwhile, U.S. West Texas Intermediate crude picked up $1.80, or 1.9%, to trade near $98.17, marking a seventh straight day of gains.

Recent negotiations between the U.S. and Iran fell apart after face-to-face meetings last week failed to produce any breakthroughs. Analysts note that despite diplomatic exchanges, actual de-escalation signs are missing, with the Strait of Hormuz still seeing limited vessel movement-an ongoing supply kink that's propping up risk premiums in oil markets.

Ship tracking reports have highlighted the tensions, showing Iranian oil tankers being turned around due to the U.S. blockade. On the other hand, a liquefied natural gas tanker operated by Abu Dhabi National Oil Co managed to cross the Strait, reportedly heading toward India.

Before the conflict erupted in late February, the strait regularly welcomed between 125 and 140 vessels each day. Its near-closure now represents a significant disruption in global energy shipping.

Energy experts suggest that the current elevated oil price levels might stick around, with some expecting a scenario of prolonged ceasefire stalemate rather than immediate resolution. DBS Bank's Suvro Sarkar envisions oil pricing drifting between $100 and $125 per barrel amid this sustained uncertainty.

The lack of clarity over whether the transit route will open up soon is forcing the physical oil markets to catch up with the higher pricing seen in futures markets. In time, this tense situation could become the new normal in global financial markets, reducing spikes but cementing a higher price baseline.