Brent crude oil held above $95 per barrel on Wednesday after Iran launched retaliatory strikes against U.S. Gulf allies, marking the latest escalation in a conflict that has kept the Strait of Hormuz under threat for months.
Brent futures closed at $95.63, up roughly 1% on the day and about 7% for the week. West Texas Intermediate traded above $91. The gains extend a rally that began in late July, when renewed attacks on tankers transiting the Strait of Hormuz pushed Brent from $69 to $105 in a matter of weeks before it settled back. Wednesday’s move suggests the market is pricing in the possibility of another supply squeeze as the conflict shows no signs of de-escalation.
Strait of Hormuz remains the fulcrum
The Strait of Hormuz handles roughly 20% of global oil shipments, and its status has defined energy markets since the Iran war began in early 2026. The EIA estimated in its latest short-term outlook that production shut-ins averaged 5.5 million barrels per day in July, a staggering figure that has drawn down global inventories at a rate of 4.2 million barrels per day through the second quarter.
The agency forecasts Brent to average around $85 per barrel in the third quarter, though that number came with a caveat about supply risks. Wednesday’s price at $95.63 sits well above that forecast, reflecting the market’s judgment that the EIA’s baseline scenario – a gradual normalization of Hormuz flows in September – may be too optimistic.
The head of the International Energy Agency described the situation as the “greatest global energy security challenge in history.” That assessment was delivered in May, before the latest round of strikes. Since then, tankers have continued to avoid the waterway, and insurance premiums for vessels transiting the strait remain elevated. QatarEnergy declared force majeure on all LNG exports following the initial closure in March, and those volumes have not fully returned.
What the strikes mean for supply
Iran’s retaliatory strikes targeted allies of the United States in the Gulf region. While details of the damage are still emerging, the attacks underscored the risk that the conflict could widen beyond the Strait of Hormuz itself. Saudi Arabia’s largest refinery and Qatar’s export facilities have been targeted by drone attacks in earlier rounds, and any repeat would tighten an already strained market.
U.S. diesel prices hit $5.69 per gallon on Wednesday, just three cents below the all-time record set in 2022. The price spike is squeezing freight costs and raising concerns about pass-through inflation into food and consumer goods. Harvest season in the northern hemisphere adds seasonal demand on top of the geopolitical premium, and logistics companies report capacity constraints on major shipping lanes.
Goldman Sachs warned in a recent note that sustained Brent prices above $100 could add 0.5 to 0.8 percentage points to core PCE inflation over the following six months. That projection is based on historical pass-through rates for oil price shocks and assumes no further supply disruptions beyond what is already priced in. If the Strait of Hormuz narrows again, that estimate would be revised sharply higher.
Impact on central banks and rates
The oil price complicates the monetary policy picture across major economies. The Federal Reserve’s Christopher Waller signaled on Wednesday that the central bank may pause rate hikes, citing weak employment data. But rising energy costs cut in the opposite direction, adding to the inflation pressure the Fed has been trying to contain. U.S. consumer prices rose 3.4% year-over-year in July, and energy was the single largest contributor to the monthly increase.
In Brazil, the central bank holds its Selic rate at 14% – one of the highest among major economies – largely to contain imported inflation driven by the weaker real and higher commodity prices. The rate has drawn carry trade flows, with the real strengthening in recent sessions as traders bet on the carry differential persisting into year-end.
European central banks face a similar bind. The European Central Bank has held rates steady since March, but energy-driven inflation could force a reassessment if Brent stays elevated. Natural gas prices in Europe have risen alongside oil, though not as sharply, thanks to diversified pipeline and LNG supply routes that were built after the 2022 energy crisis. Still, the margin for error is thin, and any further disruption to Hormuz would ripple into European energy costs within weeks.
What to watch
The August U.S. jobs report on Friday will determine whether rate-cut expectations firm up or reverse. If the labor market shows further weakness, the Fed’s dovish tilt could overshadow oil-driven inflation fears and keep risk assets supported. A strong jobs number would do the opposite – raise the specter of a rate hike alongside elevated energy costs, a combination that has historically rattled both equity and commodity markets.
The next major test for oil prices comes next week, when the EIA releases its updated supply and demand projections. If Hormuz flows have not recovered as forecast, the agency may revise its $85 per barrel third-quarter estimate upward, adding further support to prices and complicating the inflation outlook for central banks worldwide.
For consumers and businesses, the near-term outlook is grim. U.S. diesel prices are already at crisis levels, and further escalation in the Gulf would push gasoline and heating oil higher heading into winter. The strategic petroleum reserve, drawn down during earlier rounds of the conflict, has limited remaining capacity for emergency releases. The SPR stands at roughly 350 million barrels, down from a peak of over 700 million before the war began.
Oil markets have been defined by the Strait of Hormuz since March. As long as the waterway remains a chokepoint, every new strike or retaliatory action adds risk to a market already stretched thin. Wednesday’s $95.63 close is not a peak – it is a floor that could rise quickly if the next round of strikes hits export infrastructure. Traders are watching Hormuz traffic data and satellite imagery for signs of further disruption. The next 48 hours will tell whether Wednesday’s escalation was a one-off or the beginning of another squeeze.
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