Brent crude tops $105 as U.S.-Iran attacks escalate near Strait of Hormuz

Oil prices climbed to their highest levels since May on Thursday as escalating attacks between U.S. and Iranian forces near the Strait of Hormuz deepened fears of a prolonged supply disruption. Brent crude rose above $105 per barrel while U.S. benchmark West Texas Intermediate broke through $100, sending shockwaves through global financial markets.nbcnews+1

The surge followed days of intensifying hostilities. The U.S. military destroyed at least eight Iranian tankers since Saturday, while Iran's Revolutionary Guard Corps said it attacked two U.S. vessels, eight oil tankers, and 10 other ships it described as "non-compliant" near the strait, according to Reuters. Iran also announced it was expanding a maritime "prohibited zone" beyond Hormuz into parts of the Gulf of Oman and the Arabian Sea.reuters+1

Markets Rattle as Inflation Fears Mount

The oil rally rippled across asset classes. The 10-year Treasury yield climbed to 4.91%, its highest level since 2023, while the national average for on-highway diesel rose to $5.97 per gallon, approaching the $6 threshold for the first time, according to the U.S. Energy Information Administration. Regular gasoline averaged nearly $4.28 per gallon nationwide, up roughly 34% from a year earlier, according to AAA.finance.yahoo+2

The S&P 500 fell 0.6% on Thursday and was on track for a fourth consecutive loss. The Dow Jones Industrial Average dropped about 153 points and the Nasdaq Composite declined 0.9%. The European Central Bank hiked interest rates on Thursday, citing inflation pressures from the Middle East conflict, while ECB President Christine Lagarde warned that elevated inflation would persist at least into "the first half of 2027."ktvn+1

Thursday's U.S. Producer Price Index showed wholesale inflation accelerated to 5.4% annually in August, up from 4.8% in July. Traders were pricing in roughly 70% odds of a Federal Reserve rate hike at its meeting next week, up from 61% the day before, according to CME Group data.ktvn

No End in Sight

President Donald Trump said Wednesday that he expected oil prices to fall only after the November midterm elections, effectively acknowledging months more of conflict. But a Wall Street Journal News Corp ↘ 0.42% report painted a darker picture: top White House advisors have discussed with Trump the possibility the war could drag on past Inauguration Day in January 2029.cnbc

Goldman Sachs's The Goldman Sachs Group, Inc. ↘ 0.64% Daan Struyven, co-head of global commodities research, warned on CNBC Comcast Corporation ↗ 0.98% that the escalation raised the risk of oil surging above $120 a barrel. Susan Bell, senior vice president at Rystad Energy, told Fortune that global stocks of diesel, gasoline, and jet fuel had "breached levels we last saw after Russia first invaded Ukraine."fortune+1

"The conflict has entered a new stage," Bell said. "I hate to say it, but we need prices at the pump to go up higher to encourage consumers to make choices on their energy consumption."fortune