Oil edges lower as market bets U.S.-Iran tensions stay contained

Oil prices slipped in Asian and European trading Thursday as investors bet the latest U.S.-Iran military exchanges would not escalate into a full-blown war threatening crude flows through the Strait of Hormuz.

WTI crude fell 0.5% to $73.14 a barrel and Brent dipped 0.1% to $77.91 as the Trump administration's decision to avoid targeting Iranian energy infrastructure signaled a contained approach to the renewed conflict. Both benchmarks had surged more than $1 in post-settlement trading Wednesday after the U.S. launched strikes on more than 80 Iranian military sites.

"Expectations of limited military attacks between the U.S. and Iran" drove the move, ANZ Research analysts said in a note, adding that "the market drew some reassurance from the Trump administration's decision to avoid targeting Iranian energy infrastructure."

The declines partially reversed Wednesday's spike, when WTI and Brent hit their highest levels since June 22. Iran retaliated by firing 10 ballistic missiles at Jordan's Azraq military base, state media reported, while the U.S. Central Command said more than 20 Navy warships were patrolling waters across the Middle East.

The Strait of Hormuz carried about a fifth of global oil and liquefied natural gas supplies before the conflict began in late February, giving Tehran its main leverage. Goldman Sachs said risks to Gulf oil flows remain two-sided, with a base case of flows normalizing by end-July if negotiations continue and sanctions waivers on Iranian oil are reinstated — a scenario requiring Strait throughput to increase by 6.6 million barrels a day.

Cease-fire Holds by a Thread

President Donald Trump, speaking at a press conference in Ankara, said the recent clashes would not end the temporary truce or trigger a resumption of full-scale war. "Whatever happens, it will end very quickly and cause oil prices to drop further," Trump said, while simultaneously authorizing additional strikes late Wednesday to "further degrade their ability to threaten freedom of navigation in the Strait of Hormuz," according to CENTCOM.

Iranian military sources said the country's missile and drone forces would soon launch a large-scale response against U.S. military bases in the Middle East. Mohsen Rezaei, a military adviser to Iran's supreme leader, said in a social media post that "aggressors and their accomplices" would face severe retaliation. Some war underwriters have advised shipping companies to pause voyages through the Strait of Hormuz, while others are reviewing policy terms after renewed vessel attacks, insurance industry sources said Wednesday.

Broader Markets Stabilize

The oil pullback accompanied a broader recovery in risk assets. The S&P 500 climbed 0.8% Thursday, more than recovering its loss from the prior session, while the Nasdaq composite rose 1.3%. Treasury yields eased as the geopolitical risk premium moderated, with the 10-year yield near 4.56%.

New York Federal Reserve President John Williams said Thursday that markets expect oil prices to decline over the next six to 12 months, a view he described as reasonable. WisdomTree's director of macroeconomic research, Aneeka Gupta, said Brent would probably trade in a $75-to-$85 range over the next month with a mild upward bias. "The underlying supply recovery is real but incomplete, the surplus narrative is discredited for now, and diplomatic engagement — while stalled — hasn't collapsed entirely," she said.

Goldman Sachs cautioned that failed talks, escalating tanker attacks and a potential U.S. blockade of Iranian oil could reverse the current easing. Before the latest flare-up, prices had been falling as the market absorbed pent-up Middle Eastern supply released by the fragile truce and signs of rising inventories.

Separately, Russia banned diesel exports Wednesday to support its domestic fuel market after Ukrainian drone attacks on refineries caused shortages and price spikes, adding a supply-side tailwind for refined products even as crude sentiment softened. The International Monetary Fund this week cut its 2026 global growth forecast to 3.0% from 3.1%, reflecting the economic toll of the Middle East conflict.

This article is for informational purposes only and does not constitute investment advice.