Oil prices were up on Friday as tensions continued to simmer in the Middle East after the US threatened Iran with an “indefinite” blockade and financial sanctions, reigniting supply worries.
Brent, the benchmark for two thirds of the world's oil, was up 1.03 per cent at $87.97 a barrel at 1.09pm UAE time. West Texas Intermediate, the gauge that tracks US crude, added 1.62 per cent to $82.56 per barrel. Both were up nearly 2 per cent earlier in the day.
US Defence Secretary Pete Hegseth on Thursday said the country's navy could maintain a presence in the region to enforce its blockade of Iran in the Strait of Hormuz.
“Indefinitely the United States Navy can maintain a blockade like that because we'll rotate ships in and out, as we have, and we'll continue to,” he told reporters during a trip to Panama.
Separately, US Treasury Secretary Scott Bessent also said that Washington had plans to inflict more financial damage on Tehran.
“Watch this space for more announcements coming next week because we are going to apply measures like have never been seen in the history of economic isolation on a country,” he said in an interview on Newsmax.
The continued back-and-forth between Washington and Tehran, as well as Houthi aggression in the Red Sea, has mostly kept oil prices elevated this week. From last Friday's close, crude prices are on pace for a weekly gain of nearly 6 per cent.
Norbert Rucker, head of economics and next-generation research at Swiss lender Julius Baer, said the oil market continued to be “gripped” by the uncertainty of the US-Iran conflict.
“Middle Eastern geopolitics keeps oil prices up as the gridlock between the US and Iran stokes supply fears. This week’s oil market updates were particularly revealing,” he said, referring to reports from the International Energy Agency, Energy Information Administration and Opec.
The Paris-based IEA slashed its 2026 global oil supply forecast to the lowest level of the year, projecting a 4.3 million barrels per day decline – 600,000 bpd deeper than it forecast a month ago – following the continued closure of the Strait of Hormuz and attacks in the Bab Al Mandeb strait.
US-based EIA, meanwhile, anticipates oil disruptions from the Iran war to reach 600,000 bpd until the end of next year. Oil carried through the Strait of Hormuz averaged 4.9 million bpd in the second quarter this year, well below the 21.6 million bpd in the last three months of 2025, the EIA said in its latest short-term energy outlook.
“The diplomatic gridlock and the power games between the US and Iran create some uncertainty, which manifests itself in a risk premium embedded in oil prices,” Mr Rucker said.
Opec’s monthly report offered a more modest demand outlook, with the oil exporter group cutting its forecast for global demand growth in 2026 to 580,000 bpd, its fourth consecutive downward revision.
“The war of words between Washington and Tehran leaves no clear path towards reopening the Strait of Hormuz,” said Ole Hansen, head of commodity strategies at Denmark's Saxo Bank.
“Emergency stock releases have helped bridge the gap, but these barrels represent supply borrowed from the future rather than newly created supply. Strategic inventories will eventually need rebuilding, meaning an eventual return of Gulf barrels will not necessarily translate into an immediate or sustained surplus.”
