Market Volatility and the Return of Risk Premiums
The energy markets reacted sharply to the breakdown of the truce between Washington and Tehran. Brent crude, the global benchmark, climbed 9.6 percent to settle at $83.30 per barrel, while U.S. West Texas Intermediate (WTI) rose 9.4 percent to $78.14. According to data from Reuters, these figures represent the largest single-day gains since April. Earlier, separate reports indicated Brent had risen 3.6 percent to 78.7 dollars per barrel, while WTI had increased 3.5 percent to $73.92, before the more dramatic surge occurred.
Market analysts attribute this volatility directly to the re-emergence of geopolitical risk premiums—an extra cost added to commodity prices to account for the danger of supply disruptions. Rania Wajdi, an expert in global financial markets, noted that the recent rise is primarily a result of the return of the geopolitical risk premium to the market after the renewal of the confrontation between the United States and Iran. Wajdi added that the conflict became more apparent following the recent statements by U.S. President Donald Trump during the NATO summit in Ankara, where he announced the end of the ceasefire agreement with Iran, which served as the spark for the price surge.
Analysts at Deutsche Bank wrote in a Monday memo that the conflict is increasingly centered on the Strait of Hormuz. They noted that while Iran has declared the waterway effectively closed and warned ships against transiting, U.S. authorities maintain it remains open and continue to escort commercial vessels to ensure safe passage. Reports of damaged ships, intercepted missiles and drones, and strikes on energy-related sites across the Gulf indicate an expansion of the conflict.
Military Escalation Across the Gulf
The escalation has moved beyond naval skirmishes, with the U.S. Central Command (CENTCOM) announcing the completion of a new wave of strikes against Iranian targets. The U.S. military stated these actions aimed to undermine Iran’s ability to threaten international navigation. According to a statement on X, U.S. forces targeted Iranian military air defense systems, coastal radar sites, missile and drone capabilities, and small boats, utilizing fighter jets, warships, and, for the first time, one-way attack drones.
The conflict has expanded geographically, affecting regional neighbors. The Jordanian military announced it intercepted and downed four missiles entering its airspace from Iran, while the Kuwaiti military reported engaging “hostile aerial targets.” The Iranian Revolutionary Guard Corps claimed to have targeted the Prince Hassan Air Base in Jordan, the Sheikh Isa Air Base in Bahrain, and the Ali Al Salem and Ahmed Al Jaber air bases in Kuwait. Iran asserted it destroyed a U.S. drone command and control center in Bahrain and damaged fuel depots and Patriot air defense systems at the Kuwaiti and Jordanian sites.
Naval Blockades and Future Energy Infrastructure
The U.S. has announced a naval blockade set to take effect Tuesday at 8:00 PM GMT. The blockade encompasses the entire coastline, ports, and oil export terminals of Iran, applying to all vessels regardless of nationality. President Trump previously stated the U.S. would charge 20 percent of the value of all shipments passing through the Strait of Hormuz as a protection fee, a proposal rejected by the United Nations’ International Maritime Organization, which asserted there is no legal basis for mandatory fees on international straits.
In response, the General Staff of the Iranian Armed Forces stated it would not permit Washington to interfere in the management of the Strait, warning that any attempt to transit without Iranian approval would be met with a response. Meanwhile, a U.S. official told Axios that approximately 20 commercial vessels passed through the Strait within 24 hours in coordination with the U.S. military, alongside other vessels that transited without U.S. coordination.
Looking toward long-term infrastructure, analysts at Goldman Sachs anticipate an acceleration in the development of pipelines that bypass the Strait of Hormuz. They estimate that by the end of 2028, these alternative routes could increase capacity by millions of barrels per day, potentially shielding more than 60 percent of Gulf oil exports. For now, market participants are monitoring tanker traffic closely; as Giovanni Staunovo of UBS noted, a sustained drop in vessel movement could impact production and export levels, keeping the geopolitical risk premium and prices elevated.
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