Oil up two percent after US-Iran war flare-up

Oil prices surged over two percent on Monday, surpassing US$90 per barrel following a new escalation in the US-Iran conflict. Wall Street and Europe's leading markets fell as traders continued to process hawkish remarks from Federal Reserve Chair Kevin Warsh. After a drop for much of the previous week, oil prices surged again on Monday, a day after the U.S. claimed it had targeted Iranian rocket launchers on an island in the Strait of Hormuz, its first strikes against the nation in a month.

The attack sparked Tehran's retaliation by targeting U.S. military sites in Jordan. U.S. President Donald Trump announced on Monday that the United States would counter Iranian strikes on U.S. targets in the Middle East, according to Fox News. The confrontation occurred shortly after the US-Iran war entered its sixth month, and tensions had eased until the weekend's flare-up.

The news rekindled worries about the Gulf conflict, with peace talks appearing to stall and the Hormuz strait largely closed. For oil traders, this development serves as a stark reminder of how swiftly geopolitical factors can influence prices. Quintex Intel's Stephen Innes noted that physical flows through Hormuz had significantly improved from their worst levels, which was why crude had begun to shed some of its fear premium.

However, the latest exchange highlights how fragile this progress is and how quickly the shipping story can be pushed back onto the trading desk. With inflation persistently high, the U.S. Federal Reserve faces pressure to act, and Fed Chair Warsh's lack of guidance has fueled uncertainty. In Warsh's highly anticipated speech at the Jackson Hole symposium on Friday, he reiterated his intention to raise borrowing costs, citing inflation at 3.7%, nearly double the Fed's 2% target.

However, he refrained from explicitly endorsing a rate hike. All three major Wall Street indexes declined on Friday as investors anticipated an interest rate increase in September. This decline intensified on Monday, with the Dow dropping 0.5% as trading commenced in New York.