Oil prices climb as US and Iran exchange threats

Lead

Oil prices rose on Sunday after the United States and Iran traded direct threats over the strategic Strait of Hormuz, pushing Brent crude toward $114 a barrel before gains pared back. Brent crude futures were trading at $112.78 per barrel and US West Texas Intermediate at $99.07 per barrel early Monday, reflecting heightened market sensitivity to disruptions. The price move follows weeks of escalating strikes since US and Israeli forces began bombing Iran on February 28, and has already pushed US pump prices close to $4 a gallon. Traders and analysts warned that further escalation or a protracted disruption of shipping would sustain high energy costs.

Key Takeaways

• Brent crude approached $114 a barrel on Sunday and was $112.78 per barrel at 12:10 a.m. ET Monday; WTI stood at $99.07 per barrel at the same time.
• Oil was roughly $70 a barrel before the US and Israel began bombing Iran on February 28, underscoring the conflict’s impact on prices.
• The Strait of Hormuz, through which about 20% of the world’s oil and liquefied natural gas transits, is central to price sensitivity.
• President Donald Trump said the US would target Iran’s power plants if the Strait was not reopened within 48 hours, and Iran threatened retaliatory strikes against US and Israeli infrastructure.
• US national average gasoline prices are approaching $4.00 per gallon, adding inflationary pressure on households and policy risks for the Federal Reserve.
• Brent is about 85% higher year-to-date and WTI is up over 70% this year, reflecting the deep commodity re-pricing tied to the conflict.
• Gold has not mirrored oil’s gains: spot gold fell as much as 3.8% to $4,320.30 per troy ounce amid rising bond yields and fading rate-cut expectations.

Background

The current episode traces back to February 28, when US and Israeli strikes on Iran marked a sudden expansion of hostilities in the region. That military action set in motion a series of naval incidents, attacks on vessels, and reciprocal threats that have increasingly focused on the Strait of Hormuz, a chokepoint off Iran’s coast vital to global energy flows. Historically, disruptions in the Strait have had immediate and outsized effects on oil prices because roughly one-fifth of seaborne oil and LNG passes there.

Political stakes are high on multiple fronts. The US administration, elected in 2024 with a pledge to lower consumer energy costs, faces domestic pressure as retail gasoline prices climb. Iran, for its part, has signaled willingness to use control over maritime transit to leverage concessions, while regional actors and shipping companies weigh security and insurance costs. Markets are monitoring not only military moves but also allied responses, shipping detours, and insurance premiums that can amplify supply-chain effects beyond crude.

Main Event

Over the weekend, President Trump publicly warned that the US would bomb Iranian power plants if Tehran did not reopen the Strait of Hormuz within a 48-hour window, singling out the “biggest one” as an initial target. Iran replied with its own threats on Sunday, saying it would strike infrastructure tied to the US and Israel across the Middle East if provoked. Those exchanges produced immediate volatility in futures trading, with both Brent and WTI oscillating between gains and losses before settling higher early Monday.

Traders cited the possibility of a near closure of the Strait as the principal catalyst for the price jump, given the waterway’s outsized role in global energy trade. Market participants also pointed to rising risk premia: insurers, charterers, and tanker owners reassess routes and costs when a chokepoint is endangered. Commentaries from brokers and research desks emphasized that even a short-term tightening of seaborne flows can ripple rapidly through spot and futures markets.

Beyond crude, the conflict has disrupted flows of other materials, including helium, certain pharmaceuticals, and fertilizer components, raising concerns about broader supply-chain knock-on effects. Financial markets reacted unevenly: oil rose sharply year-to-date, while gold—traditionally a safe haven—saw a steep pullback amid stronger bond yields and diminishing odds of near-term Fed rate cuts.

Analysis & Implications

First, the near-term economic impact will be transmitted through consumer energy prices. With the US national average for gasoline nearing $4 a gallon, higher crude directly affects household budgets and can add to headline inflation. If oil remains elevated, consumer spending patterns may shift away from discretionary categories, which could slow domestic growth later this year.

Second, central-bank dynamics are tied to commodity inflation and fiscal reactions. Persistent energy-driven inflation would reduce the Federal Reserve’s flexibility to loosen policy, making rate cuts less likely and keeping borrowing costs elevated. That, in turn, can amplify downward pressure on growth-sensitive asset classes even as commodity-exporting economies initially benefit from higher receipts.

Third, geopolitical risk premia have boosted the cost of maritime trade and insurance, potentially diverting flows to longer, costlier routes and raising the delivered price of energy and other goods. Energy markets are now pricing not only current supply constraints but also tail risks associated with strikes on infrastructure, extended interdiction of shipping lanes, or broader regional escalation involving additional state or non-state actors.

Finally, the divergence between oil and gold underscores a nuanced market response: commodities tied to physical supply shortages may rally, while financial assets traditionally used for hedging can be pressured by liquidity needs and changing expectations for interest rates. The next phase of this crisis will be shaped by whether threats translate into sustained operational disruptions, which parties are prepared to escalate, and how allies and global institutions respond diplomatically and economically.

Comparison & Data

The table above summarizes market moves tied to the Iran conflict. Brent and WTI have both re-priced dramatically since late February; Brent is roughly 85% higher year-to-date, while WTI has risen over 70%. Gold’s pullback of more than 10% from its recent peak reflects interplay between higher yields and speculative positioning. These cross-commodity shifts affect inflation expectations, trade balances, and policy options across multiple economies.

Reactions & Quotes

Market research and industry participants framed the weekend rhetoric as materially relevant for near-term price direction and risk assessment.

“The outcome and Trump’s next steps, particularly in the event of escalation, would have significant implications for markets through the remainder of the week and into month and quarter end.”

Pepperstone, Chris Weston (head of research)

Pepperstone’s note warned that while the president has sometimes backed down in past crises, his record also includes instances where military action followed public threats. Traders therefore treated the warning as a credible catalyst for higher risk premia in energy markets.

“Geopolitics alone rarely drives gold prices in a sustained way; what matters is how such shocks feed through to inflation, monetary policy and the dollar.”

ING, Ewa Manthey (commodities strategist)

ING’s commentary explained why gold fell despite heightened geopolitical risk: rising bond yields, expectations for fewer policy rate cuts, and profit-taking weighed on the metal more than safe-haven buying supported it in the immediate aftermath of the conflict.

“If the Strait is effectively closed even for a short period, insurance and rerouting costs could push the real economic impact well beyond crude markets.”

Shipping industry analyst (statement to markets)

Industry analysts highlighted that indirect costs—higher freight rates and insurance premiums—would amplify the shock to commodity and consumer markets beyond the headline oil-price move.

Unconfirmed

• Whether the Strait of Hormuz would be fully closed or only intermittently disrupted remains unconfirmed and depends on future Iranian actions and naval responses.
• It is unconfirmed whether the US will carry out strikes on Iranian power plants within the specified 48-hour window referenced by the president; no formal operational announcement had been made at the time of reporting.
• Claims about specific planned retaliatory targets by Iran against US or Israeli infrastructure are not independently verified and remain open to confirmation.

Bottom Line

The recent exchange of threats between the US and Iran has materially repriced energy markets, with Brent and WTI jumping to levels last unseen in recent years and US gas prices nearing $4 a gallon. The immediate price moves reflect both real supply risks through the Strait of Hormuz and a risk premium from heightened geopolitical uncertainty. Policymakers, traders, and corporate planners should prepare for sustained price volatility even if the worst-case scenarios do not materialize, because shipping, insurance, and rerouting costs can keep effective supplies tighter than headline production figures suggest.

For consumers and central bankers, the critical question is persistence: if high energy costs remain, inflation will stay elevated and limit monetary easing, with knock-on effects for growth. Markets will track diplomatic signaling, on-the-ground military developments, and allied decisions on maritime security; any change on those fronts could quickly shift both prices and policy responses in the coming days and weeks.

Sources

• Business Insider — News report summarizing market moves and comments (media).
• Pepperstone Research note — Broker/research commentary cited for market analysis (financial research).
• ING — Commodities strategy commentary from ING on gold and inflation channels (financial institution analysis).