Oil rises on renewed US-Iran hostilities and threat of Red Sea closure

LONDON: Oil prices rose by more than 2% on Friday after the U.S. and Iran stepped up attacks across the Gulf, with shipping threatened by a potential Red Sea closure on top of the restricted traffic through the Strait of Hormuz.

Brent crude futures rose by $1.77, or 2.1%, to $86 a barrel by 1158 GMT. U.S. West Texas Intermediate futures were up $1.91, or 2.4%, at $80.86.

Both benchmarks have climbed about 13% this week, with Brent on track for a third consecutive weekly gain and WTI set for its second.

Diesel refining margins hit record highs on Friday, with low-sulphur gasoil futures touching $66.25 over Brent crude.

The Middle East is a major diesel exporter and the Hormuz closure, as well as attacks on oil refineries, have tightened fuel markets and bolstered prices globally.

The broken truce between the U.S. and Iran has resulted in a drop in oil flows out of the strait. Iran, meanwhile, has pressed the Houthi movement to close the Red Sea route if the U.S. strikes Iran’s power infrastructure.

Transit through the Red Sea has increased significantly since the start of the Iran war because of rerouted Saudi oil exports away from Hormuz, Commerzbank analysts wrote.

“Should a blockade of the Strait of Bab al-Mandab occur in the wake of further escalation, the price of oil in particular is likely to rise further,” they wrote.

Iran said it launched fresh strikes on U.S. facilities in the Middle East on Friday, including the first direct attack in Syria, after a sixth straight night of U.S. strikes on Iranian military facilities.

U.S. Central Command said on Thursday that American forces had begun a new wave of strikes against Iran to further degrade Iranian military capabilities.

“Oil security is still a critical issue,” International Energy Agency Executive Director Fatih Birol said on Thursday at a Council on Foreign Relations event in Washington.

“We should be worried, and I am worried, if the situation does not improve in the next few weeks,” he said.

Meanwhile, Qatar’s defence ministry said its armed forces thwarted an Iranian missile attack early on Friday and the interior ministry said a child was injured by shrapnel resulting from interception operations.

One of Kuwait’s power generation and water desalination stations was hit by an Iranian attack, Kuwait’s electricity ministry said on Friday.