Oil prices rise as U.S.-Iran peace hopes dim, supply risks grow

Oil prices saw an uptick as diplomatic efforts between the U.S. and Iran appear to stall, diminishing prospects for peace and increasing anxieties over global energy supplies. A senior Iranian official indicated a move towards a "fully offensive" military posture, citing the breakdown of negotiations for a permanent end to the conflict. Concurrently, the U.S. has stated it will not extend the temporary ceasefire agreement.

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Iran will shift to a "fully offensive" military posture because efforts to negotiate a permanent end to the war with the U.S. have stalled.

The potential for peace talks and the resumption of oil tanker traffic through the critical Strait of Hormuz has effectively halted. This situation threatens to prolong the conflict initiated by U.S. and Israeli actions against Iran on February 28. Brent crude futures rose by 0.3 percent to $91.14, reaching their highest point since July 30, while U.S. West Texas Intermediate crude futures climbed to $85.04 a barrel, also hitting a multi-week high.

Analysts note that the shaky U.S.-Iran relations are driving the oil market's surge. "A deal to reopen the Strait of Hormuz still does not appear to be in sight, and shipping numbers remain at a trickle," commented Tim Waterer, chief market analyst at KCM. Data from Kpler shows a drastic reduction in transits through the Hormuz Strait, with only five commodity vessels passing on Saturday compared to 31 the previous weekend.

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Outward progress towards peace talks and a resumption of oil tanker traffic through the strategic Strait of Hormuz has ground to a halt, threatening to extend the conflict that the U.S. and Israel launched with attacks on Iran on February 28.

Adding to the supply concerns, Yemen's Houthis claimed responsibility for missile attacks on Saudi military vessels in the Red Sea. Waterer emphasized the critical nature of the Strait of Hormuz and the Bab el-Mandeb, stating, "These are not secondary concerns. They sit at the centre of the current supply-risk narrative."

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Oil has jumped to start the week as U.S.-Iran relations look increasingly shaky. A deal to reopen the Strait of Hormuz still does not appear to be in sight, and shipping numbers remain at a trickle.

Despite these tensions, there are faint glimmers of diplomatic activity. Iran has been in separate negotiations with Oman regarding the management of the strait, reportedly nearing a deal. However, U.S. President Trump has previously threatened to bomb Oman if such an agreement were reached. Media reports also suggest that Trump has initiated back-channel discussions with Iran's Islamic Revolutionary Guard Corps.

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The dual chokehold on the Strait of Hormuz and the Bab el-Mandeb remains highly significant. These are not secondary concerns. They sit at the centre of the current supply-risk narrative.