Oil jumps as conflict deepens across Iran and Lebanon.
Israel pushes deeper into Lebanon as diplomacy struggles, while weak global demand raises fresh concerns over oil prices.
Oil prices climbed sharply on Monday after a fresh round of military clashes in the Middle East rattled markets and dimmed hopes that the fragile ceasefire between the United States and Iran could soon be extended. U.S. crude rose $2.29, or 2.6%, to $89.65 a barrel, while Brent added $2.05, or 2.3%, to $93.17, reflecting investor worries about supply disruptions as the region’s fighting intensifies.
The immediate trigger was a cycle of strikes between Tehran and Washington over the weekend. U.S. military officials said American aircraft hit Iranian radar installations and drone-control sites near Goruk and on Qeshm Island in response to the shootdown of a U.S. MQ-1 Predator operating over international waters. Iran’s elite Revolutionary Guard said it had struck an air base after what it described as a U.S. attack on a telecommunications tower on Sirik Island. Those tit-for-tat moves come as Israel pushes deeper into southern Lebanon in operations against Hezbollah, a Tehran-backed militant group, increasing the sense that the conflict could widen.
The increased fighting followed high-profile diplomacy: the U.S. hosted Israel-Lebanon peace talks in Washington just days earlier. That meeting gave some markets cause for optimism that a political solution might be within reach. Instead, the fresh violence has cooled expectations that negotiators will soon announce an extension to the early-April ceasefire—a development that had helped push Brent and WTI lower at the end of last week.
The narrow waterway, through which roughly one-fifth of globally traded oil and gas passed, has been effectively choked since the conflict began in February. Analysts worry about mines and other obstacles left in the strait, which would slow any reopening and delay relief to global supplies even after hostilities ease. Tony Sycamore, an analyst at IG, warned that mine clearance could be slow and that “even if an agreement is reached, it won’t deliver a flood of supply.”
Those supply concerns outweighed weak economic signals from China over the weekend. Data showed factory activity stalling in May, with exports contracting and price pressures persisting—signs that demand in the world’s second-largest economy is faltering. Markets tracked both the geopolitical premium and the softer demand picture, producing a tug-of-war over where oil prices head next.
Goldman Sachs weighed in late Sunday, flagging weak demand in China and Europe as a significant downside risk to its forecasts for the fourth quarter, which projected Brent at $90 a barrel and WTI at $83. At the same time, the bank noted that ongoing disruptions in the Middle East could still push prices higher, underscoring how volatile the outlook remains.
Adding to the nervousness were reports that Iran had laid more mines in the Strait of Hormuz earlier in the week, an Axios reporter said on X. That allegation followed comments from U.S. Defense Secretary Pete Hegseth warning that any attempt to deploy more mines would breach the terms of the ceasefire. If true, additional mine-laying would extend the period of elevated risk for tankers and shippers and keep a premium on prices.
Beyond immediate price moves, traders are parsing which narrative will dominate markets: the risk premium tied to geopolitical flare-ups, or the weakening demand story from major economies. For now, the geopolitical tilt has the upper hand, pushing oil higher as markets reassess the chance of prolonged supply constraints.
If diplomacy manages to steady the ceasefire and shipping lanes are cleared quickly, the premium could ebb. Conversely, further strikes, mine threats, or deeper Israeli-Hezbollah fighting would likely keep oil prices elevated, with knock-on effects for energy markets and inflation elsewhere. For traders and policymakers, the fragile mix of military action and high-stakes negotiations means the outlook will remain uncertain—and closely watched—over the coming weeks.