Oil prices jumped on Wednesday after a renewed round of US-Iran hostilities and new regional risks shattered a days-long lull in fighting, dousing cautious market hopes that a resolution was brewing. 

International benchmark Brent crude rose nearly 8% to around $90.75 a barrel just after 12:00 pm EDT. That reversed much of last week's decline as Iran launched new strikes and Saudi Arabia joined the US bombing campaign, while Hormuz talks hit a new impasse as new pressures arise simultaneously in the Red Sea, further imperiling global energy flows. Meanwhile, explosions hit a natural gas terminal in Egypt on Wednesday, potentially marking the expansion of the US-Iran war to the Mediterranean coast. 

What happened: Oil’s latest rally followed a fresh round of military action after Washington and Saudi Arabia carried out joint strikes against Iran-backed groups in Iraq overnight, marking the first publicly acknowledged Saudi participation in US-led operations since the conflict began. The strikes came after Iran confirmed attacks on US military facilities in Jordan and vessels operating in the Strait of Hormuz. 

Later on Wednesday, a US-owned floating storage tanker in Egypt was reportedly hit by a drone at the port of Damietta. The as yet unclaimed attack, if linked to Iran, could be another dangerous development in the conflict.  

These fresh incidents quickly ended a brief period in which markets had bet on diplomacy prevailing after President Donald Trump's decision last week to pause new US strikes. Brent fell more than 15% between July 23 and July 28 despite continued uncertainty over Hormuz. That optimism has now largely evaporated.

Diplomatic efforts over the future management of Hormuz also appeared to suffer another setback. Reuters reported on Tuesday that Tehran rejected an Omani proposal for joint management of the strategic waterway, with Iranian officials instead insisting on an arrangement that would leave the Islamic Republic exercising greater control over shipping lanes while rejecting the long-standing international Traffic Separation Scheme, which designates routes for inbound and outbound maritime traffic in the waterway and was adopted by the UN’s International Maritime Organization in 1968.

Simultaneously, Washington is also seeking to increase pressure through economic rather than military means. On Tuesday, the US Treasury announced sanctions against two Iranian entities accused of collecting compulsory fees from commercial vessels transiting Hormuz, alongside additional measures targeting companies linked to transporting Iranian crude.

These fresh tensions came as at least 12 vessels transited through the Strait of Hormuz on July 28, according to Kpler. Among them was the liquefied natural gas carrier Mraweh, chartered by UAE state oil giant ADNOC, which became the first confirmed LNG tanker to pass through Hormuz since July 11.

Meanwhile, attention is increasingly shifting west to the Red Sea. Since declaring it would target Saudi-linked shipping on July 20, Yemen's Houthis have widened the conflict beyond Hormuz, threatening infrastructure and exports routed through Saudi Arabia's East-West Pipeline to Yanbu.

On Tuesday, the Iran-backed rebels claimed another attack on a Saudi-linked tanker. This came as traffic was also showing signs of rebounding through the Bab el-Mandeb Strait, driven by tankers with links to China. Reuters has reported that China has opened direct discussions with the Houthis to secure safe passage for its own tankers through the choke point, while other supertankers are heading north on a longer and costlier voyage through the Suez Canal. Meanwhile, Saudi Arabia is turning to Egyptian infrastructure to keep crude flowing. 

Why it matters: For oil markets, the latest price jump reflects more than another round of airstrikes as the United States searches for new ways to pressure Iran and Saudi Arabia takes on a growing role in the conflict. This comes as the Gulf’s energy export corridors face mounting pressure as the US-Iran conflict surpasses the 150-day mark without a clear resolution in sight. 

While Hormuz remains the central focus, the Houthis' campaign against Saudi-linked shipping threatens one of the few remaining alternative export routes that became increasingly important after Gulf traffic collapsed earlier this year. The global economy’s ability to absorb this ongoing energy supply shock will be tested should the Yemeni group prove even modestly successful in disrupting Saudi exports. 

Strategic oil reserves, which reached historic lows prior to the US-Iran ceasefire in June, are once again looming larger amid reminders that global buffers aren’t unlimited. On Wednesday, the US Energy Information Administration released new US inventory data indicating that commercial crude stocks fell far more than expected last week and remain below seasonal averages, while the Strategic Petroleum Reserve remains at the lowest level in decades. 

With another familiar escalatory spiral now underway in the Gulf, prolonged supply disruptions are poised to further erode the flexibility that helped prevent the conflict from triggering the worst-case energy crisis many had feared earlier this year. Should new US-Iran escalations stretch into August, market forecasts of Brent crude prices climbing back toward $120 per barrel could become reality in the coming weeks. 

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