Oil prices fell by around 1% on Wednesday, retreating from a recent 10% rally sparked by escalating tensions between Israel and Iran. Brent crude slipped to $75.50 a barrel, while U.S. West Texas Intermediate fell to $72.30.
The decline follows market concerns over potential supply disruptions from the Middle East, especially in the Strait of Hormuz — a vital shipping route for about 20% of global oil flows. Although Iran’s crude export infrastructure remains untouched, the risk of a wider regional conflict has driven oil volatility to a three-year high, with Brent's futures curve shifting into bullish backwardation.
President Donald Trump intensified tensions by demanding Iran’s “unconditional surrender” and hinting at strikes on Ayatollah Ali Khamenei. Israel, meanwhile, has reportedly run low on missile interceptors and continues to pressure the U.S. for deeper involvement. Analysts warn that a full blockade of Hormuz could cause prices to surge above $80.
Despite the geopolitical risks, some analysts see a cap on price increases. OPEC+ holds about 5.7 million barrels per day in spare capacity, which could offset even a complete halt in Iranian exports.
Markets are also eyeing the Federal Reserve’s ongoing policy meeting. While no immediate rate change is expected, geopolitical instability and signs of slowing U.S. growth could push the Fed toward a July rate cut. However, rising oil prices could complicate that decision by fueling inflation.
Adding to the bullish signals, U.S. crude stockpiles reportedly dropped by over 10 million barrels last week — the biggest decline since last summer.