Oil prices fell after Iraq reached an agreement to resume crude exports via Türkiye, bypassing the Strait of Hormuz, amid intensified US efforts to force the reopening of this key waterway.
Brent crude fell below $101 a barrel after adding more than 3% on Tuesday, while West Texas Intermediate crude was near $92 a barrel.
Iraq and the Kurdistan Region have agreed to resume oil exports via a pipeline in the autonomous region, which runs to the Turkish port of Ceyhan on the Mediterranean Sea.
The United States said it used bunker-buster munitions to target Iranian anti-ship cruise missile sites near the Strait of Hormuz, the vital waterway that U.S. President Donald Trump is seeking to reopen.
A further escalation in the war came after Iran confirmed the killing of Ali Larijani, the secretary of Iran’s Supreme National Security Council and a key pillar in the country’s leadership during the war.
Aaron Stein, president of the Foreign Policy Research Institute, said that Larijani's killing was a major event and could embolden Iran to disrupt oil flows. He added: It's clear that Trump is under pressure to escort oil tankers, so we are facing the prospect of highly charged U.S. operations, something I'm sure the U.S. Navy wants to avoid.
Limited impact of redirecting Iraqi oil
Rerouting Iraqi oil through Türkiye will only partially alleviate supply concerns. The OPEC member's production has fallen to around 1.4 million barrels per day, roughly a third of its pre-Shift of Hormuz closure levels.
Brent crude has risen by about 70% this year, with the bulk of that increase occurring after the initial US and Israeli attack on Iran late last month. As Tehran targeted assets and disrupted oil tanker traffic, the conflict drove up energy prices and fueled concerns about accelerating inflation.
This price increase, with diesel in the US exceeding $5 a gallon this week, is likely to come under scrutiny from central banks worldwide as they guide monetary policy. US Federal Reserve officials are meeting on Wednesday to decide on their stance regarding interest rates, although no change is expected.
Market focus on the Strait of Hormuz
The oil market's focus remains primarily on the vital strait, which is effectively closed. Traffic is now governed by political calculations, with Iran likely to allow only a limited number of ships to pass based on its political affiliations, while deterring or preventing most others.
Robert Rennie, head of commodities research at Westpac Banking Corp., said: “With no end in sight to the hostilities, threats rising daily, and the strait technically closed, we still see Brent crude remaining in a new higher range of $95 to $110.”
He added: If we see a major refinery targeted or confirmation of more mines being laid in the strait, we expect this range to increase by an additional $10 to $20.
In the latest trading, Brent crude futures for May settlement fell 2.8% to $100.55 a barrel at 6:24 a.m. in London, while West Texas Intermediate crude futures fell 4.2% to $92.14 a barrel, and the most traded May delivery contract fell 4.1% to trade at $91.64 a barrel.
