Yesterday (04), the most actively traded Brent contract closed higher, reaching USD 114.44/bbl (+5.80%). WTI futures followed a similar trajectory, ending the day at USD 106.42/bbl (+4.40%).
The price movement reflects the most severe escalation since the ceasefire announced a month ago, with Iran attacking vessels in the Strait of Hormuz and targeting the port of Fujairah in the United Arab Emirates — a strategic hub for storing oil and derivatives from the Middle East.
This morning (05), Brent is trading at USD 113.51/bbl, impacted by a combination of partial relief following the escorted passage of a U.S. Navy vessel and skepticism about the sustainability of the initiative. The market is weighing whether the episode signals the beginning of a gradual reopening or merely a one-off event amid ongoing hostilities.
Operation Freedom: U.S. Pushes for Strait Reopening
President Donald Trump announced "Operation Freedom," mobilizing 15,000 troops, over 100 aircraft, and warships to escort commercial vessels through the Strait of Hormuz. The initiative marks the first attempt to use military force since April's ceasefire to unblock the critical shipping route.
Why this matters: Initially, the passage of the Alliance Fairfax provided partial relief to the risk premium embedded in oil prices, contributing to a pullback in prices this morning. However, skepticism has since taken hold, with the market viewing this move as an isolated event rather than a full-scale reopening. As long as the strait remains effectively blocked, supply shocks persist, and upward pressure on futures contracts remains firmly in place.
Overview: Maersk confirmed that the U.S.-flagged vessel Alliance Fairfax crossed the strait with military escort — the only confirmed case during the session.
- Iran denied any successful crossings, stating that there is no military solution to the crisis.
- Meanwhile, major shipping companies have indicated they will wait for a formal agreement to end hostilities before resuming regular crossings through the strait.
What to expect: Should negotiations mediated by Pakistan lead to a ceasefire agreement with a negotiated reopening of the strait, a significant correction in oil prices is likely, with the market quickly repricing normalized flows. Without such an agreement, further instances of military escalation are expected to reignite the geopolitical risk premium seen yesterday.
Fujairah Port in Flames: Strategic Hub Outside the Strait Targeted
The Iranian attack on Fujairah port marks a significant escalation in the conflict. Fujairah is one of the few Gulf oil export terminals operating outside the Strait of Hormuz — precisely why it was considered a logistical escape valve for Gulf cargoes amid the strait's blockade.
Why this matters: The attack on Fujairah eliminates, at least temporarily, one of the few alternative routes for Gulf oil exports that did not rely on the strait. This deepens the ongoing reconfiguration of flows and reduces the logistical capacity to offset regional export disruptions. The geopolitical risk premium embedded in Brent prices is likely to remain elevated as uncertainty over access to Fujairah persists.
Overview: An empty tanker owned by ADNOC, the UAE's state oil company, was hit by Iranian drones while attempting to cross the strait.
- The UKMTO (British maritime security agency) reported two incidents involving vessels off the UAE coast in a single day.
- Iran released a map expanding its declared maritime control zone, including the ports of Fujairah and Khorfakkan, as well as the coast of Umm Al Quwain.
What to expect: The attack on the Fujairah Port in the UAE has heightened concerns over navigating the Strait of Hormuz, with the market interpreting Tehran's offensives as a “warning” for vessels to avoid crossing the route.
- In this context, the market is likely to remain focused on oil and derivative flows through the terminal, as well as the military situation in the region, with shipping companies showing increased caution in entering the Persian Gulf.
U.S.-Iran Negotiations: 14-Point Proposal Under Review, Nuclear Deadlock Continues
Iranian state media reported that Washington has transmitted its response to Tehran's 14-point proposal via Pakistan, with Iran now reviewing the contents. The Iranian document suggests postponing discussions on the nuclear program to a later stage, following a war-ending agreement and the lifting of maritime blockades.
Why this matters: The brief relief observed this morning is directly tied to Trump's remarks suggesting the conflict could extend for another two to three weeks. The market notes that each projected timeline for resolution has been systematically surpassed by new episodes of escalation since February — limiting the credibility of any near-term resolution signals and keeping the geopolitical risk premium priced in.
What to expect: If negotiations via Pakistan advance to a formal ceasefire agreement addressing maritime blockades, Brent prices could see a sharp decline. However, the nuclear issue remains the primary sticking point and is likely to prolong discussions even if an operational agreement on the strait is reached.
