Further sanctions are expected to be imposed against the Islamic Republic.

The resumption of military strikes between the U.S. and Iran, after a month of dormancy, drove oil prices higher on Monday, though the gains were modest after a senior Iranian source told media the latest exchange was a "limited and contained confrontation."" The restrained price reaction underscored how traders have grown accustomed to episodic flare-ups in the conflict, weighing each incident against the risk of a durable disruption to supply.

By mid-session Monday, Brent had risen 2.8 percent to $90.59 per barrel, while West Texas Intermediate hovered around $86 per barrel.

Josh Owens, energy analyst at Oilprice.com, stated: "Brent's move back above $90 is significant, but prices remain well below the levels seen during earlier periods of the war… Both benchmarks fell more than 4 percent last week, and the early 2 percent gain has done little to offset broader market losses."

How the Skirmish Resumed

The exchange of fire restarted after Iran was caught deploying rocket launchers on Larak Island to send mines into the Strait of Hormuz on Sunday. Following the U.S. strike against the launchers, Iran retaliated by firing on two U.S. bases in Jordan, to no effect, and the United Arab Emirates said it intercepted an Iranian drone over its waters on Monday.

With Washington's latest response still pending, the U.S. was expected to roll out additional secondary sanctions against the Islamic Republic. Secondary sanctions extend penalties to third-party countries and companies doing business with Tehran, a tool Washington has used previously to pressure Iran's oil customers. Treasury Secretary Scott Bessent remarked, "I would think [Iran is] lashing out kinetically because they are losing economically."

Focus on the Strait of Hormuz

ING analysts wrote in a note: "The key is whether this ignites further rounds of strikes from both sides, and whether it leaves shippers hesitant to navigate the Strait of Hormuz." They noted that oil producers in the region have become more comfortable transporting crude through the waterway in recent weeks, with an average of 5 million barrels per day transiting the strait. The Strait of Hormuz is one of the world's most important chokepoints for seaborne oil trade, and sustained disruption there would affect crude and liquefied natural gas shipments from major Gulf producers with few alternative routes.

Inflation and Rate Expectations

Meanwhile, higher energy prices resulting from the war have fuelled already stubbornly high inflation to above 3 percent — far beyond the U.S. Federal Reserve's 2 percent target. Consequently, traders saw a nearly 60 percent chance of a rate hike at the Fed's September meeting, according to the CME FedWatch tool, a sharp increase from 41 percent a week ago. Any increase could hurt the jobs market, and with it demand — a dynamic that would feed back into oil consumption, since fuel demand tends to weaken as economic activity cools.

Source: Ship & Bunker