Global crude oil prices surged more than 5% on Wednesday after the United States launched fresh military strikes on Iran in retaliation for Tehran's attacks on commercial vessels in the Strait of Hormuz. The escalation prompted US President Donald Trump to call off the interim peace deal with Iran, further destabilizing the region and reigniting fears of sustained high inflation.
US strikes and Trump's response
The US Central Command stated in a post on X that the strikes were a response to Iranian attacks on three commercial vessels transiting the Strait of Hormuz. It described Iran's actions as unwarranted, dangerous, and a clear violation of the ceasefire. Speaking to reporters in Ankara during a press conference at the NATO summit, President Trump declared that he no longer wishes to deal with the Iranian leadership, referring to them as 'scum'. He also confirmed the termination of the interim peace deal that had been signed in June.
Oil price movements
The US West Texas Intermediate crude oil was trading at USD 74.5 per barrel, up 5.8%, while the global benchmark Brent crude rose to USD 78.35 per barrel, a gain of 5.65%. Prior to this escalation, oil prices had weakened to pre-conflict levels as diplomatic talks progressed following the signing of a Memorandum of Understanding (MoU) in June. The MoU had immediately halted hostilities and opened the Strait of Hormuz for 60 days toll-free, allowing commercial vessel traffic to resume.
Revocation of sanctions waiver
The US has also revoked the sanctions waiver that was granted to Tehran in the wake of the interim peace deal and the conclusion of the first round of talks between the two sides in Switzerland. The resumption of commercial vessel traffic had picked up as tensions ebbed and signs of rapprochement appeared. However, the latest round of strikes signals that oil prices could again climb back to levels that threaten inflation.
Impact on US economy and politics
US gasoline pump prices have remained high despite the recent fall in global crude oil prices, and Trump's warning to oil companies to cut prices has had limited effect. High inflation is a major concern for Trump as he prepares for the November midterm elections. The fresh bout of tensions between the US and Iran raises the odds of a rate hike by the US Federal Reserve, even as its newly appointed chairman, Kevin Warsh, has prioritized bringing inflation down to its comfort level.
