Oil prices rise as US-Iran firefight tests ‘fragile’ ceasefire in Hormuz strait

Oil prices spiked nearly 3% to $103 per barrel on Friday following an exchange of fire in the key Strait of Hormuz waterway. 

The US characterized the engagement as self-defense against unprovoked attacks, while Tehran accused Washington of violating the April ceasefire by targeting Iranian ships and coastline positions.

Despite the clash, President Trump insisted the ceasefire remains in place, downplaying the strikes as a “love tap” while claiming US forces “completely destroyed” several Iranian small boats. 

The strait remains effectively blocked- a critical issue as more than 20% of global oil and gas typically passes through the waterway. Prices have climbed from $70 to over $100 since the conflict began.

Trump noted that negotiations with Iran were ongoing and repeated Washington's demand that Tehran must never possess a nuclear weapon.

“The talks are going very well, but they have to understand that if it doesn't get signed, they’re going to have a lot of pain”, he told reporters.

“I believe they want the deal more than I do.”

Trump this week said that the war-which started on 28 February when the US and Israel attacked Iran- would be “over quickly” as Washington proposes a structure for more detailed negotiations with Tehran.

Parallel to the aviation industry, surging fuel costs are hitting airlines hard. IAG warned that fuel costs could see a €2bn increase, causing its shares to tumble over 5%. 

Analysts suggest that while the situation has temporarily “returned to normal,” the recent clashes indicate that a full resolution and a return to formal negotiations remain a distant prospect.

Chris Beauchamp, chief market analyst at investing platform IG, said: “The limited recovery in its shares since April signals limited market confidence in the potential for a full recovery, at least until the conflict is fully resolved.

“But as last night's clashes show, even a start to negotiation seems a long way off.”