The Strait of Hormuz has been functionally closed since late February, and oil is pricing that reality at over $100 a barrel — the next major driver for oil prices may not be physical supply figures alone
Brent crude traded 1.9% higher at $106.92 per barrel during afternoon London dealing on Thursday, while WTI pushed 2.4% higher to $100.59 — both contracts are now up roughly 45% since U.S. and Israeli-led strikes on Iran began on 28 February. The move higher came as Iran’s Foreign Ministry spokesperson Esmaeil Baghaei confirmed the Islamic Republic had received Washington’s latest proposal and was reviewing it, according to Sam Meredith at CNBC. That’s a fractionally softer tone than an outright refusal — and the tape responded accordingly.
What’s Actually on the Table, and Who’s in the Room
Pakistan’s Army Chief, Asim Munir, was due to travel to Tehran on Thursday to continue mediating between Washington and Tehran, according to Iran’s ISNA news agency cited by CNBC. Pakistan hosted earlier rounds of talks last month and has become the central conduit for written exchanges — Baghaei confirmed “several rounds of communication” had taken place based on Iran’s original 14-point framework. The fact that exchanges are still passing through an intermediary, rather than direct bilateral talks, suggests significant differences between the two sides may still remain
Trump’s language at Joint Base Andrews on Wednesday did nothing to narrow it. “Believe me, if we don’t get the right answers, it goes very quickly. We’re all ready to go,” Trump told reporters. Asked how long he’d wait: “It could be a few days, but it could go very quickly.” The following morning, he said he’d been an hour away from ordering a strike on Tuesday before postponing. This pattern — deadline set, deadline deferred, rhetoric escalated — has repeated enough times that markets have learned to discount the threat slightly, but not to ignore it. The 2.4% WTI move on Thursday suggests market participants appear cautious about positioning aggressively against the move.
Iran’s Revolutionary Guard raised the stakes further with a statement, reported on Wednesday, threatening to extend the conflict “beyond the region” if U.S. and Israeli strikes resume. That language — directed at broader escalation rather than just Hormuz — is the sentence traders should be watching most carefully. A regional spillover that draws in Gulf producers complicates supply assumptions that already assume Hormuz stays blocked.
The 45% Rally Has a Structural Ceiling Problem
The 45% rise in both Brent and WTI since 28 February reflects a genuine structural disruption: around 20% of the world’s oil and liquefied natural gas passed through the Strait of Hormuz before the war, and shipping traffic has virtually halted since the conflict began. The move reflects both geopolitical sentiment and physical supply-chain disruption concerns. The UAE’s bypass pipeline, separately reported as nearly 50% complete, offers a partial future relief valve, but it’s not operational now, and “nearly 50%” doesn’t move barrels this week.
The supportive supply-side conditions for oil prices remain present But the ceiling risk is real: any credible de-escalation signal — even a joint statement agreeing to continue talks — could lead to increased volatility or a reassessment of current price premiums . Traders who bought February’s dip are sitting on material gains, and the question is whether they hold through a diplomacy-driven whipsaw.
The DXY is the less obvious watch here. A genuine peace deal that reopens Hormuz would likely trigger a risk-on unwind, with the dollar giving back some of the geopolitical premium it may have accumulated. Conversely, a military strike resumption would probably bid the dollar sharply as a safe-haven destination, even as oil makes new highs.
The Bear Case Isn’t Diplomacy — It’s Demand Destruction
At $106.92 Brent and $100.59 WTI, the demand-destruction math starts to bite. Sustained triple-digit oil has historically compressed airline operating margins, widened industrial input costs, and put consumer discretionary names with high-energy exposure under pressure — particularly in import-heavy economies without domestic production buffers.
That pressure doesn’t show up in one session’s price action; it accumulates over weeks of elevated crude costs and eventually feeds back into demand signals that could weigh on the very prices sustaining the rally. If the conflict drags through Q3 without resolution and demand data from Asia and Europe softens, the supply-shock bid may start competing with a demand-contraction headwind. That’s the scenario that could challenge the sustainability of current price levels.
There’s also the question of Trump’s negotiating consistency. The president has set and deferred strike deadlines multiple times since February. If Tehran concludes that Washington’s red lines are elastic, the incentive to make meaningful concessions on its 14-point framework diminishes — potentially extending the stalemate indefinitely and keeping both sides in a “neither war nor peace” equilibrium that leaves shipping volumes depressed without providing the demand clarity that energy markets need to set a durable price.
Catalysts to Watch
- Pakistan’s Army Chief Asim Munir’s Tehran visit (Thursday, 21 May 2026) — any joint statement or confirmation of a formal response timeline from Iran would be the immediate catalyst. Silence is itself a data point.
- EIA weekly petroleum supply report — EIA data will continue to reflect the structural Hormuz disruption in U.S. import and storage figures. A widening inventory draw may extend the crude bid.
- Any Trump statement on Iran strike timelines — given the president’s own characterisation of “a few days,” any public comment before the weekend resets the risk premium across the Brent and WTI curves.
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