Oil rallies toward $85 amid widespread US-Iran military exchanges

Oil prices advanced on Friday, July 17, as escalating military exchanges between the United States and Iran in the Gulf severely restricted oil flows through the Strait of Hormuz, while threats of a potential shipping blockade in the Red Sea further unnerved energy markets.

Brent crude futures climbed 70 cents, or roughly 0.83%, to settle at $84.93 a barrel by 0312 GMT. Concurrently, U.S. West Texas Intermediate (WTI) futures rose 81 cents, or 1.03%, to $79.76 a barrel, reversing losses sustained during the previous trading session. Both global benchmarks are poised to register substantial weekly gains of nearly 12%, putting Brent on course for its third consecutive weekly rise and WTI on track for its second, as per Reuters observations.

The geopolitical escalation has reignited deep anxieties over global supply security. "The potential threat of the Red Sea becoming another major supply disruption point is further complicating the global oil outlook," said Tim Waterer, chief market analyst at KCM Trade, who added that this "dual-risk scenario" is keeping a significant geopolitical risk premium priced into both crude benchmarks.

Speaking on Thursday at a Council on Foreign Relations event in Washington, International Energy Agency (IEA) Executive Director Fatih Birol reiterated the gravity of the current situation. "Oil security is still a critical issue," Birol warned. "We should be worried, and I am worried, if the situation does not improve in the next few weeks," he added.

The spike in crude prices follows a dramatic breakdown of the maritime truce established last month under a bilateral memorandum of understanding. In a notable escalation, the U.S. launched two highly coordinated waves of airstrikes on Wednesday, primarily targeting positions near Iran's southern coastline, with combat operations persisting through Thursday.

The military offensive has since expanded. In a formal statement, U.S. Central Command (CENTCOM) confirmed that American forces initiated "a new wave of strikes against Iran for the sixth consecutive night to further degrade Iranian military capabilities" at 2:00 p.m. EDT (1800 GMT / 9:30 p.m. Tehran time).

Tehran has responded aggressively, executing drone and missile retaliatory strikes targeting U.S. military installations in adjacent countries, including a heavy bombardment of a recently expanded U.S. airbase in Jordan. On Friday morning, Qatar's Ministry of Defence announced that its military successfully intercepted an incoming Iranian missile. The Qatari Ministry of Interior confirmed that a child suffered shrapnel wounds during the interception process.

The risk of a wider regional shipping blockade is mounting. Three sources familiar with the matter told Reuters that Iran’s leadership has instructed Houthi political and military officials in Yemen to stand ready to shut down the critical Red Sea export route if American forces target Iran's domestic power grid and utility infrastructure.

Market technicians at IG indicated that WTI remains structurally supported, suggesting the U.S. benchmark could test the mid-$80s per barrel range provided it maintains its footing above key technical support levels in the mid-$70s.

By Tamilla Hasanova