Oil prices rose after efforts to restart peace talks over the war with Iran faltered, with the vital Strait of Hormuz remaining virtually closed, prolonging the turmoil that has rattled markets in the energy-rich Middle East.
Brent crude rose as much as 2.5% to $107.97 a barrel, while West Texas Intermediate traded near $97, before easing slightly after Axios reported that Tehran had presented the United States with a new proposal to open the Strait.
US President Donald Trump cancelled a weekend trip for his top envoys to Pakistan, which is mediating the talks, while Iran said it would not negotiate as long as it was under threat.
The Hormuz crisis deepens the supply shock
The ceasefire has largely held since early April, but the blockade of the Strait of Hormuz by both the United States and Iran has made passage through this vital energy chokepoint virtually impossible. The resulting supply shock has choked flows of crude oil, refined products, and natural gas, raising fears of an inflation crisis.
Mona Yacoubian, director of the Middle East program at the Center for Strategic and International Studies, said the strait remains largely under blockade, with traffic at a standstill. She added, Neither side seems to want a return to open conflict. We are in a complete stalemate; the situation has reached a dead end.
According to Axios, citing sources including a U.S. official, Iran, through Pakistani intermediaries, offered the United States a proposal to reach an agreement to reopen the Strait of Hormuz and end the war, while postponing nuclear talks to a later stage.
The website added that Trump is expected to hold a meeting on Monday with senior national security and foreign policy officials to discuss the stalemate in negotiations.
Trump's statements and Iran reflect the continued stalemate
On Saturday, Trump asked his envoys Jared Kushner and Steve Witkopf to cancel the trip to Pakistan, and later told reporters that Iran had offered a lot, but not enough.
For his part, Iranian President Masoud Pezeshkian said that his country would not enter into negotiations imposed under threat or siege.
The war, now in its ninth week, has led to soaring energy prices and shortages of essential products like liquefied petroleum gas in India, and has prompted airlines to reduce flights. The International Energy Agency says the conflict is causing the biggest supply shock in history.
Robert Yawger, director of energy futures at Mizuho Securities, said: We are heading towards price stability above $100. He added: With each passing day, the chances of reaching an agreement anytime soon diminish.
According to traders, the longer the Strait of Hormuz remains closed, the more consumption will have to readjust downwards to match supplies that have fallen by at least 10%.
They added that the loss of one billion barrels is now almost certain, more than double the emergency stockpiles released by governments after the conflict, with the potential for a further decline in demand.
US moves to intercept ships and impose sanctions
In a related development, U.S. forces intercepted a sanctioned vessel in the Arabian Sea on Saturday as part of the blockade, according to U.S. Central Command.
The United States deployed a Navy helicopter to intercept the ship, which subsequently complied with military orders to return to Iran under escort. Central Command stated that a total of 37 ships have been redirected since the start of the blockade.
Most of Iran's crude oil goes to China, where private refineries known as tea refineries take advantage of the cheaper barrels.
On Friday, the United States imposed sanctions on Hengli Petrochemical (Dalian) for its ties to Tehran, weeks before a planned summit between Trump and Chinese President Xi Jinping. The company denied having any business with Iran.
Harris Khurshid, chief investment officer at Carobar Capital in Chicago, said: “The market has already priced in a good amount of risk,” referring to the war in Iran. He added that Brent crude would likely trade in a range of $100 to $115 a barrel unless there is a wider regional escalation.
