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Oil prices surged on Monday after Pakistan-brokered US-Iran talks ended in failure and US President Donald Trump announced blockading the Strait of Hormuz and intercepting vessels in international waters that had paid a toll to Iran.
Brent, the benchmark for two-thirds of the world’s oil, which touched an intraday high of $103.69, was up 6.64 per cent at $101.32 a barrel at 11.17am UAE time. West Texas Intermediate, the gauge for US oil, was trading 7.06 per cent higher at $103.39 a barrel.
Brent settled last week at $95.20 a barrel, while WTI finished at $96.57.
Crude prices have been extremely volatile since the beginning of the war, with Brent surging about 60 per cent in March, its biggest monthly gain on record.
Last week, Brent lost more than 11 per cent, and WTI plunged by more than 14 per cent on Wednesday alone, after the US and Iran agreed to a two-week ceasefire just hours before Mr Trump's deadline to annihilate Iran’s civil and energy infrastructure.
Failed talks
However, the talks in Islamabad that began on Saturday failed after a marathon 21 hours of negotiations on Sunday, US Vice President JD Vance announced.
The US and Iranian delegations left the Pakistani capital the same day, and there is no clarity on whether there will be another round of negotiations. Pakistani officials have called for further talks while the ceasefire still holds.
Hours after the talks in Islamabad collapsed, Mr Trump announced the US Navy would immediately begin blockading the Strait of Hormuz, through which 20 per cent of global oil and gas supplies pass.
“Effective immediately, the United States Navy … will begin the process of blockading any and all ships trying to enter, or leave, the Strait of Hormuz,” Mr Trump wrote on Truth Social on Sunday.
The US president accused Tehran of “world extortion” and said US forces would also “seek and interdict every vessel in international waters that has paid a toll to Iran”.
The US will also begin clearing naval mines in the strait, he said, and warned that any Iranian attacks on US or commercial vessels would be met with force.
Other countries would be involved in the blockade, he added in his post, without providing details.
"President Trump’s reaction to the breakdown in talks has been to seemingly escalate the geopolitical situation once more," Michael Brown, senior research strategist at Pepperstone, said.
"Whether this is all part of another ‘escalate to de-escalate’ strategy remains to be seen."
As the week gets underway, markets are trading in rather "textbook risk-off fashion, as participants reach once more for the ‘conflict escalation’ playbook", Mr Brown added.
Short-term shock
Trading in Brent, which hit an intraday high of almost $120 a barrel on March 19, has largely been headline-driven amid the US-Israel war on Iran and Tehran’s retaliatory strikes on its Gulf neighbours.
Mr Trump's repeated threats to destroy Iranian energy infrastructure and the effective blockade of the Strait have swung global energy markets.
His latest move to blockade ships coming in and out of Iranian ports, which Tehran said is a breach of the two-week ceasefire, could potentially push Oil prices to $150 per barrel in the short term.
“The number we saw this morning — $103 [per barrel]; 8 per cent increase - is not reflective at all of what could happen if the US really decides to go with this interdiction,” Onyx Capital Group managing director Jorge Montepeque said on Bloomberg Television.
“It really makes no sense. It should be $140, $150.”
The US blockade would transform a regional fight into potentially a global fight, with a supply loss of up to 12 million barrels a day, Mr Montepeque added.
Market participants, including Wood Mackenzie and global energy consultancy FGE NexantECA, have warned that oil prices rising as high as $200 a barrel this year is a possibility in the absence of a solution to open the strait.
An Iranian military spokesman last month also said the world should “get ready” for such a scenario.
Not Iran's to close
Iran has effectively closed the Strait for but a few vessels. Hundreds of tankers, LNG carriers and bulk carrying ships remain stranded in the Gulf.
On Sunday, Dr Sultan Al Jaber, Minister of Industry and Advanced Technology and managing director and group chief executive of Adnoc, said that the Strait of Hormuz has never been Iran’s to close or restrict, and it is attempting to disrupt the global economy.
The blockade of the vital waterway for global trade and energy flows is not a regional issue, “it is the disruption of a global economic lifeline and a direct threat to the energy, food and health security of every nation”, Dr Al Jaber said in a post on X.
“Setting such a precedent is illegal, dangerous and unacceptable. The world simply cannot afford it and must not allow it.”
