Oil prices are expected to extend their gains when trading opens on Monday, as the US-Israeli war against Iran enters its third week, putting oil infrastructure at risk and keeping the Strait of Hormuz closed in the world's biggest disruption to oil supplies.
US President Donald Trump threatened further strikes on Iran’s oil export hub on Kharg Island, prompting a defiant response from Tehran, which vowed further retaliatory strikes.
Brent crude and West Texas Intermediate (WTI) futures contracts had already surged sharply, roiling global financial markets. Both contracts have risen by more than 40% since the beginning of the month, reaching their highest levels since 2022, after US and Israeli attacks on Iran prompted Tehran to halt shipping through the Strait of Hormuz, a strategic waterway through which roughly a fifth of the world's oil supply passes.
Trump called on China, France, Japan, South Korea, Britain and other countries to deploy warships to secure this vital sea lane.
On Saturday, the United States launched strikes on military targets on Kharg Island, which were quickly followed by an Iranian drone attack targeting a major oil terminal in the United Arab Emirates.
Analysts at JPMorgan, led by Natasha Caneva, said this represents an escalation in the conflict, adding that the region's oil infrastructure had largely been spared from targeting until now.
Analysts pointed out that the port of Fujairah in the UAE, along with the Ras Tanura export terminal in Saudi Arabia and the oil processing facilities in Abqaiq, are vital nodes in the Gulf's energy network, and are also highly vulnerable.
However, oil loading operations have resumed at the port of Fujairah, according to a Fujairah-based energy sector source who spoke to Reuters on Sunday.
Fujairah is located outside the Strait of Hormuz and serves as an outlet for exporting about one million barrels per day of Emirati Murban crude, which is equivalent to about 1% of global oil demand.
Global oil supply is expected to fall by about 8 million barrels per day in March due to shipping disruptions, at a time when Middle Eastern producers have cut their output by at least 10 million barrels per day, according to estimates by the International Energy Agency.
The agency had agreed last week to release a record 400 million barrels from member countries' strategic oil reserves to curb rising prices, while Japan plans to begin pumping part of its reserves starting Monday.
Meanwhile, the Trump administration rejected efforts by Middle Eastern allies to initiate diplomatic negotiations, according to three sources familiar with the efforts, while Iran rejected the possibility of a ceasefire before the US and Israeli strikes ceased, weakening hopes for a swift end to the conflict.
