Global oil markets have been volatile as the deadline set by US President Donald Trump for Iran to reopen the strategically vital Strait of Hormuz draws near.
Brent crude, the international benchmark, initially climbed above $111 per barrel in early Tuesday trading before retreating to around $109.
On Monday, Trump warned that Iran could face rapid and decisive military action if it failed to reach an agreement with the US by 8:00 PM Washington time on Tuesday (midnight GMT Wednesday).
Energy shipments from the Middle East have been significantly disrupted, as Tehran has threatened attacks on vessels attempting to transit the strait in retaliation for US and Israeli airstrikes that began on February 28.
During a White House briefing, Trump stated that he believed “reasonable” Iranian leaders were negotiating “in good faith,” but acknowledged that the final outcome remained uncertain.
Iran has so far turned down proposals for a temporary ceasefire, insisting instead on a permanent resolution to the conflict and the removal of sanctions.
The early spike in oil prices on Tuesday indicated investor concerns that reaching a deal may be difficult due to Iran’s uncompromising position, suggesting that the conflict could continue longer than expected, according to Ye Lin from Rystad Energy.
Traders are also debating whether Trump genuinely seeks a deal or is using the negotiations as a cover while preparing for a more extensive strike.
Tineke Frikkee, senior fund manager at W1M, noted that even if a resolution is reached soon, economic benefits will take time to materialize.
“Oil shipments through the Strait of Hormuz may resume more quickly, but it will take time for deliveries to reach final destinations,” she explained. “For other resources, such as liquefied natural gas, facilities have been offline, so restarting production could take three to four months.”
Ahead of Trump’s deadline, several Asian nations have negotiated with Iran to ensure their vessels can transit the strait, given their heavy dependence on Gulf energy supplies.
Frikkee added that significant challenges remain for oil supply because of the US-Israel-Iran conflict.
“Even if a ship can pass through, the costs are high. Insurance rates have surged, and competition for passage is fierce, effectively driving prices to the highest bidder,” she said.
The ongoing disruptions have led Jamie Dimon, CEO of JPMorgan, to warn that global interest rates could rise as the conflict fuels inflationary pressures.
Prior to Tuesday’s deadline, the UK plans to host a meeting of allied military planners to discuss securing the Strait of Hormuz once hostilities subside.
Interruption of this critical shipping route has driven global energy prices higher and raised concerns over accelerating inflation worldwide.
About 20% of global oil and gas shipments typically transit the narrow waterway.
Major Asian economies, including Japan and South Korea, have been particularly affected due to their dependence on Middle Eastern energy imports.
Although some vessels have continued to use the strait in recent weeks, traffic remains significantly below pre-conflict levels.
Trump has also called on other nations to deploy warships to the region to help ensure safer passage for commercial vessels.