Oil prices fell more than 1% on Thursday as traders assessed the escalating conflict between the United States and Iran. Markets also focused on what the latest tensions could mean for efforts to fully reopen the Strait of Hormuz.
Before the Iran war, around 20% of global oil supplies moved through the key shipping route.
Brent crude futures fell $1.12, or 1.4%, to $76.90 a barrel by 11:02 a.m. EDT. U.S. West Texas Intermediate crude dropped $1.20, or 1.6%, to $72.32.
On Wednesday, Brent settled at its highest level since June 19. WTI also closed at its highest level since June 22.
Middle East Tensions Pressure Oil Markets
Iranian armed forces launched attacks on U.S. military infrastructure in Gulf states on Thursday. The strikes followed U.S. military operations targeting Iran’s southern coastal and eastern provinces.
The escalation placed more pressure on a ceasefire agreement that had been in place for around three weeks.
The attacks also came as Iran buried its slain Supreme Leader Ayatollah Ali Khamenei at the shrine of Mashhad. His burial followed a week of mass funeral processions and rallies. Khamenei was killed on the first day of the war on February 28.
Strait of Hormuz Reopening Faces New Risks
Iran’s Revolutionary Guards Navy said U.S. attacks and efforts to redirect shipping through the Strait of Hormuz were disrupting the waterway’s gradual reopening.
Goldman Sachs analysts said oil flows from the Persian Gulf had recovered to more than 80% of pre-war levels during the first 10 days after Hormuz began reopening. This was helped by trapped tankers rushing to leave the Persian Gulf.
However, flows later dropped back to the low-70% range of normal levels after recent tanker attacks.
Ukrainian Drone Strikes Add to Supply Concerns
Oil markets also faced fresh pressure from Europe.
Ukraine’s military said Ukrainian drones struck another dozen Russian tankers in the Sea of Azov overnight. The attacks are part of a broader campaign aimed at disrupting fuel supplies to Russian forces and isolating Russian-occupied Crimea.
On Wednesday, U.S. diesel futures posted their biggest daily percentage gain in four years. The move followed Russia’s decision to ban exports of the industrial fuel, adding to global supply concerns.
Russia said Thursday that the United States was wrong to believe deep Ukrainian strikes inside Russian territory could help end the war. Moscow warned that such attacks could instead prolong the conflict.
Russia Sanctions Remain in Focus
A possible settlement in the Ukraine war could eventually lead to the removal of some sanctions on Russia. That could allow Moscow to export more oil.
Russia was the world’s third-largest crude oil producer in 2025, behind the United States and Saudi Arabia, according to U.S. energy data.
At the same time, the European Union is preparing new policies and funding programs designed to shift more of its economy toward electricity instead of oil and gas. If successful, the plan could reduce long-term oil demand in Europe.
U.S. Jobs Data Supports Stable Labor Outlook
In the United States, jobless claims fell last week. The data supported the view that the labor market remains in a “slow-hire, slow-fire” phase, even after a sharp slowdown in job growth in June.
Minutes from the Federal Reserve’s June 16-17 meeting showed that policymakers were more concerned about inflation. However, they generally expected labor market conditions to stay stable in the near term.
Fed officials also expected the unemployment rate to remain close to current levels.
Fed Watches Energy Prices and Inflation
Federal Reserve Bank of New York President John Williams said Thursday that he did not expect a sustained rise in energy prices for the rest of the year, despite renewed war in the Middle East.
Central banks use interest rates to control inflation. Higher rates can increase borrowing costs, slow economic growth, and reduce demand for oil.
China Inflation and Typhoon Risks Add Uncertainty
In China, producer price inflation rose to its highest level in four years in June. This added pressure on manufacturers’ profit margins, especially as weak domestic demand limited their ability to raise prices.
China and Taiwan were also preparing for what could be one of the most destructive tropical storms in years. Typhoon Bavi was moving southeast of Taiwan on Thursday, with winds near 200 kph, while parts of China were still recovering from Typhoon Maysak.
For now, oil markets remain caught between Middle East supply risks, Russian fuel disruptions, U.S. economic data, and uncertainty over global demand.
