Oil prices dropped sharply on Tuesday, despite rising geopolitical tensions in the Middle East following US airstrikes on Iranian nuclear sites and Iran’s retaliatory attack on a US base in Qatar.
Brent crude, the global benchmark, surged to a five-month high at the start of the London trading day but later fell nearly 4% to settle around $74 per barrel. US West Texas Intermediate (WTI) crude dropped even more steeply, falling approximately 7% to $68.
The price drop surprised many, given the scale of the weekend’s military action. However, analysts said the market reaction was tempered by Iran’s measured response and the continued flow of oil through the Strait of Hormuz — a critical global shipping route for oil and gas.
“If Iran had moved to shut down the Strait, we’d be looking at a very different market reaction,” said Helima Croft, head of global commodities strategy at RBC Capital Markets. “But so far, that hasn’t happened.”
The Strait of Hormuz, which connects the Persian Gulf to global markets, sees around 20% of the world’s oil pass through it daily. Iran’s parliament reportedly debated a closure, but no action has been taken. Analysts suggest military deterrence and diplomatic pressure — particularly from key allies like China — have played a role in keeping the route open.
Despite the current stability, volatility remains a threat. “The oil market is pricing in hope over risk,” said Simon French, chief economist at Panmure Liberum. “But if the conflict escalates or the Strait is closed even briefly, prices could soar.”
Goldman Sachs warned that a partial disruption in the Strait could push Brent crude above $110 per barrel — a move that would have wide-reaching consequences for global inflation.
Already, energy costs have begun to climb. Petrol prices in the UK have increased by 1.5p to 133.5p per litre over the past week, while diesel is up 2p to 140p. Analysts warn that if Brent exceeds $100 per barrel, fuel prices could spike to over 155p, reminiscent of the spring 2022 surge following Russia’s invasion of Ukraine.
Craig Lowrey of Cornwall Insights noted that the UK’s energy bills remain insulated for now, thanks to the regulator’s price cap until September. However, continued instability could drive prices higher in the autumn, especially for businesses not covered by the cap.
The conflict also poses risks to broader global economies. A sustained rise in oil prices could lift inflation across advanced economies by up to 1%, according to Capital Economics. That, in turn, could force central banks to halt or reverse interest rate cuts.
“In the UK, inflation could rise above 4% if oil climbs to $110 a barrel,” French said. “That would create serious challenges for the Bank of England.”
While President Donald Trump has publicly called for increased oil production to ease prices, markets remain on edge. As long as tensions persist, traders and consumers alike will be watching the Gulf — and the Strait of Hormuz — closely.
