Washington: Oil prices rose further on Wednesday as renewed fighting between the United States and Iran increased fears of further disruption to oil shipments through the Strait of Hormuz.
Brent crude rose 75 cents, or 0.8 percent, to $95.40 a barrel in early trading, while US West Texas Intermediate crude rose 44 cents, or 0.5 percent, to $90.66. Both benchmarks gained more than $4 on Tuesday as tensions between Washington and Tehran increased.
The latest rise in oil prices is adding to concerns about inflation in major economies. Higher energy costs can increase transport and production costs and put pressure on households and businesses. If oil prices remain high for a longer period, central banks could face a more difficult balance between controlling inflation and supporting economic growth.
The latest escalation followed new US airstrikes against Iranian military targets. US Central Command said the strikes included attacks on air defence systems, radar systems, maritime assets and communications facilities in Iran.
Iran responded with missile and drone attacks against US interests in the region. Jordan said 13 ballistic missiles entered its airspace. Its air defences intercepted 10 of them, while three landed in remote areas. Jordan reported no deaths or injuries from the attacks.
Iran also claimed attacks against US positions in Bahrain and Iraq. Some of the Iranian claims about damage and casualties have not been independently confirmed. Kuwait also said its armed forces were responding to hostile drone activity.
The renewed fighting has increased concern over the Strait of Hormuz, one of the world's most important routes for oil shipments. Before the conflict, the waterway carried about one fifth of the world's oil consumption.
Shipping activity through the strait has fallen sharply in recent days. Preliminary data showed that only a small number of commodity vessels crossed the waterway on Tuesday, compared with higher numbers in previous days. Some ships also switch off tracking systems while crossing the area, making the exact number difficult to establish.
Two oil tankers carrying Saudi crude were also struck by unknown projectiles while travelling through the Strait of Hormuz on Monday. The incidents added to concerns about the safety of commercial vessels and the ability of oil companies to move supplies through the region.
Despite the disruption, oil has not stopped moving completely through the waterway. US Energy Secretary Chris Wright said 17 million barrels of crude oil passed through the Strait of Hormuz on Monday. He described it as the highest level of crude oil movement through the waterway since the war reduced flows.
This means the immediate concern for oil markets is not a complete halt in supplies, but the risk that military activity could make shipping increasingly difficult and unsafe.
The economic effects are also being felt in financial markets. US stocks fell on Tuesday as rising oil prices increased concerns about inflation, while the yield on the 10 year US Treasury note also moved higher.
Higher oil prices could make it harder for central banks to reduce interest rates if inflation remains high. At the same time, higher borrowing costs could put pressure on household spending, business investment and economic growth.
Countries that depend heavily on imported oil could also face higher fuel costs and stronger inflation if prices remain elevated.
For oil markets, the key question is now how long the disruption will last. Traders are watching the military situation as well as diplomatic efforts that could help restore safer and more regular shipping through the Strait of Hormuz.
The latest escalation has therefore increased pressure not only on global energy markets but also on economies already dealing with inflation concerns. Until there is clearer evidence of reduced tensions and more reliable oil shipments through the region, oil prices are likely to remain sensitive to developments between the United States and Iran.