Oil Prices Post Largest Weekly Gain Since July as US-Iran Tensions Flare

Oil prices are poised for their most significant weekly gain since mid-July, as intensifying hostilities between the United States and Iran fuel concerns over a potential disruption to Middle East energy supplies. The geopolitical risk premium has sent prices soaring, with the U.S. benchmark rising over 10% for the week.

By Friday morning trading in Asia, Brent crude futures held steady at $95.52 a barrel, marking a 7.6% weekly increase, according to Reuters. U.S. West Texas Intermediate (WTI) crude futures were trading at $91.36 a barrel, putting the contract on pace for a 10.4% gain on the week.

Geopolitical Tensions Heighten Supply Risks

The rally follows what reports describe as the fiercest clashes between the U.S. and Iran since July. U.S. attacks this week reportedly resulted in dozens of casualties, including Iranian civilians. The conflict, which began with U.S.-Israeli strikes in late February, is now in its seventh month.

Adding to market jitters, Israeli Defence Minister Israel Katz reiterated threats to "cripple" Iran's military and civilian infrastructure, specifically including its energy facilities. Meanwhile, U.S. Vice President JD Vance stated Thursday that Washington would not engage in talks with Tehran until it ceases attacks on commercial shipping in the critical Strait of Hormuz, a vital chokepoint for global oil transit.

Market Outlook and Analyst Views

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The escalating conflict has a direct impact on energy markets, with average U.S. diesel prices already reaching record highs, according to the source. The attacks on Russian refineries by Ukraine have also contributed to supply tightness.

In response to the heightened risk, analysts at ANZ raised their short-term forecast for Brent crude to $95 a barrel, noting an upside risk if the conflict expands. "Elevated inventories helped absorb the initial supply crisis, but the challenge is now to keep the market balanced as those buffers diminish," the analysts wrote in a client note.

Countervailing Factors

Despite the strong upward momentum, some factors are capping further price gains. Two Iraqi energy officials stated that the country increased its oil exports in August to approximately 2.34 million barrels per day (bpd), a significant jump from 1.35 million bpd in July. Exports are expected to remain strong in September.

Separately, Russian President Vladimir Putin signaled that a diplomatic path to end the war in Ukraine remains possible, a development that could ease some pressure on global energy markets if it materializes.