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Oil markets react to military exchange in key waterway
Global oil prices climbed nearly 3% on Friday following a confrontation between US and Iranian forces in the Strait of Hormuz, a critical chokepoint for global energy shipments.
US and Iran trade accusations over attack
The US military reported striking Iranian vessels in self-defense after what it described as "unprovoked" attacks on American ships exiting the Gulf. The operation involved three US destroyers, according to President Donald Trump, who claimed Iranian small boats were "completely destroyed" and incoming missiles were intercepted.
Iranian state media countered that the US had breached an April ceasefire by targeting Iranian ships, including an oil tanker, near the strait. Tehran said its forces retaliated with attacks that caused "significant damage" to US vessels, though the US military denied any hits on its ships.
Ceasefire remains in place despite tensions
Despite the exchange, both sides downplayed the risk of escalation. Trump told reporters the US-Iran ceasefire "is still in place," while Iranian state media later declared the situation "back to normal." US Central Command stated it was not seeking further conflict.
"The talks are going very well, but they have to understand if it doesn't get signed, they're going to have a lot of pain."
US President Donald Trump
Trump reiterated Washington's demand that Iran must never acquire nuclear weapons, calling the ongoing negotiations "very well" but warning of consequences if no deal is reached.
Economic ripple effects felt across industries
The Strait of Hormuz, which typically handles over a fifth of the world's oil and gas, has been effectively blocked since the US-Israel war with Iran began in late February. Brent crude prices spiked to nearly $103 a barrel before settling around $100-up from pre-conflict levels of $70.
The conflict has also driven up jet fuel costs by roughly 50%. British Airways' parent company IAG projected its fuel expenses would reach €9 billion this year, a €2 billion increase from 2025. The airline secured 70% of its fuel needs for the remainder of the year but saw its shares drop over 5% in early London trading.
"The limited recovery in its shares since April signals limited market confidence in the potential for a full recovery, at least until the conflict is fully resolved."
Chris Beauchamp, Chief Market Analyst at IG
Diplomatic efforts continue amid fragile truce
Trump suggested this week that the war could end "quickly" as Washington pushes for a framework to advance negotiations. However, analysts describe the ceasefire as "fragile," with traders reacting nervously to even minor clashes.
National University of Singapore researcher Huifeng Chang noted that despite both sides downplaying tensions, markets remain on edge. "Even a start to negotiation seems a long way off," said IG's Beauchamp.
