Oil prices experienced a significant rebound following renewed geopolitical tensions between the United States and Iran, which have raised concerns about potential disruptions to global oil supply, particularly through the critical Strait of Hormuz shipping route. West Texas Intermediate (WTI) crude traded around $87.10 per barrel on Monday, gaining 3.80% on the day after recovering from a Friday low near $78.89. This rebound comes as uncertainty grows over the peace process between Washington and Tehran, especially after Iran's foreign ministry spokesperson Esmail Baghaei announced Tehran would not participate in upcoming negotiations in Pakistan, citing 'aggressive acts' by the US and a violation of the ceasefire agreement [1].
The situation escalated after the US reportedly intercepted and seized an Iranian-flagged cargo vessel in the Gulf of Oman, prompting Iranian authorities to vow retaliation and threaten withdrawal from diplomatic talks if the maritime blockade continues. These developments have revived fears of supply disruptions, as the Strait of Hormuz is one of the world's most important oil transit chokepoints. Any restriction of flows through the strait could significantly tighten global supply and push prices higher [1].
Brent crude also saw heightened volatility, with Deutsche Bank analysts noting sharp price swings driven by the evolving Iran risk. Brent rebounded 5.61% to $95.45 per barrel on Monday after a steep 9.07% decline on Friday, which had brought prices down to $90.38 per barrel, the lowest since March 10. The volatility was exacerbated by conflicting signals from Iran regarding the status of the Strait of Hormuz: after initially announcing the strait would remain open during the ceasefire, Iran reversed its position less than a day later, effectively halting shipping through the strait once again [2].
Market expectations for a return to normal shipping conditions have shifted rapidly. On Friday, Polymarket priced the probability of Strait traffic normalizing by the end of May as high as 84%, but this fell back to around 63% after the weekend's developments, though still above the 37% probability seen the previous week [2]. Despite the recent rebound, both WTI and Brent remain below their highs from earlier in the month, with WTI still well under the $106.50 level seen previously and Brent only recovering to mid-week levels [1][2].
Analysts from Deutsche Bank caution that recent optimism regarding conflict resolution and energy prices may prove fragile, as oil prices remain highly sensitive to ceasefire headlines and shipping probabilities in the region [2]. Investors are currently balancing the risk of further escalation against the possibility that negotiations could resume, contributing to ongoing volatility in oil markets [1][2].
CONCLUSION
The renewed US-Iran tensions and disruptions in the Strait of Hormuz have triggered a sharp rebound and heightened volatility in both WTI and Brent crude prices. While markets have partially recovered from last week's selloff, the situation remains fluid and highly sensitive to geopolitical developments, keeping oil prices volatile and market sentiment cautious.