Crude and gasoline prices surge as US-Iran tensions escalate
Geopolitical friction in the Middle East and supply disruptions in Russia drive energy costs higher, though rising US output and OPEC+ expansion plans temper the rally.
Crude oil and gasoline prices extended their recent gains, with August West Texas Intermediate (WTI) crude reaching a one-month high and August RBOB gasoline climbing to a 1.5-month peak. The rally was underpinned by the collapse of a proposed truce between the United States and Iran, which has reignited hostilities and disrupted vital shipping lanes. August WTI crude rose by 1.04 per cent to $0.81, while August RBOB gasoline advanced by 1.47 per cent, reflecting heightened concerns over global supply constraints.
The escalation followed renewed US military strikes on Iranian targets and attacks on oil tankers in the Strait of Hormuz. The United Arab Emirates confirmed that two oil tankers were struck by Iran in Omani waters while transiting the southern route of the strait. These incidents have significantly reduced shipping traffic through the waterway, a critical artery for global energy trade, thereby tightening available supplies and pushing prices higher.
Market volatility was further influenced by intensifying conflict in Eastern Europe. Ukrainian drone attacks on Russian oil infrastructure have severely impacted Moscow’s energy sector, reducing refining capacity and fuel exports. According to monthly data from the Organisation of the Petroleum Exporting Countries (OPEC), Russian crude production fell to 8.928 million barrels per day in June, marking the lowest level in two and a half years. EA Analytics reported that Russian crude-processing rates averaged 3.91 million barrels per day in the first 10 days of July, the lowest in 21 years, as widespread damage to facilities has triggered fuel rationing across 90 per cent of Russian regions.
Despite the bullish geopolitical backdrop, prices retreated from their intraday highs after President Trump announced plans to replace a proposed 20 per cent fee on Hormuz cargo with new trade and investment deals with Gulf States. This diplomatic pivot provided some relief to markets, although the underlying tension remains a dominant factor. The International Energy Agency has also warned that the conflict’s impact on global oil demand will be deeper than previously anticipated, revising its consumption forecast downward.
Conversely, several bearish fundamentals continue to weigh on the market. The United States Department of Energy raised its 2026 crude production estimate to 13.78 million barrels per day, while OPEC+ delegates have signalled plans to further increase output quotas, aiming to complete the restoration of halted production by the end of September. Additionally, Russian crude exports have risen to a four-week average of 4.13 million barrels per day, potentially offsetting some of the supply tightness caused by reduced refining capacity.
