Oil prices experienced a surge following the US Navy’s downing of an Iranian drone, as traders assessed the potential for escalating tensions between the United States and Iran. West Texas Intermediate (WTI) increased by as much as 2.6 per cent, surpassing $US63 a barrel, after the Pentagon reported that an Iranian drone approached a US aircraft carrier in the Arabian Sea and was subsequently shot down in “self-defence”.
At 1.40pm in New York, WTI was trading 1.7 per cent higher at $US63.24, while Brent Crude rose 1.5 per cent to $US67.29. The incident has reintroduced a geopolitical risk premium to oil prices, which had recently subsided due to indications that Washington was softening its stance on Tehran. However, gains were partially offset after White House press secretary Karoline Leavitt stated that President Donald Trump prioritises diplomacy with Iran.
The developments occurred shortly after an oil tanker involved in a US military fuel procurement program was approached by small armed vessels in the Strait of Hormuz off the Iranian coast. This event highlighted the renewed risks to maritime traffic in the region. The Strait of Hormuz is a critical choke point through which approximately one-third of the world’s oil supply passes.
Concerns surrounding the Strait of Hormuz have already led to a significant increase in tanker rates in recent days, reflecting the market’s sensitivity to potential disruptions in this vital waterway.
