Oil steadied near multi-month highs as traders priced in the risk of disruption across the Middle East.
West Texas Intermediate settled near $66 a barrel after climbing almost 6% last week, following President Donald Trump’s statement that he was considering a military strike on Iran. Diplomatic discussions are scheduled to resume Thursday in Geneva.
Iranian Foreign Minister Abbas Araghchi told CBS there was a “good chance” of a diplomatic solution to the nuclear standoff, while reiterating that Tehran would not yield to US military pressure. Uranium enrichment remains a central sticking point.
The US Embassy in Lebanon evacuated “dozens of its staff members” as a precaution “amid anticipated regional developments,” according to local broadcaster LBCI.
The New York Times reported US officials are monitoring signs Iran could carry out retaliatory attacks on American targets abroad. Options traders have been paying elevated premiums for weeks to hedge against a price spike.
Any escalation would threaten flows through the Strait of Hormuz, the conduit for exports from Saudi Arabia, Iraq and Kuwait, much of it bound for Asia. Iran produces more than 3 million barrels per day, with most shipments heading to China. The concentration of supply through a narrow corridor continues to expose global markets to geopolitical shocks.
However, analysts argue the rally reflects risk pricing rather than physical scarcity. Morgan Stanley wrote: “Oil is rallying on risk, not tightness.” The bank added: “Taken together, the combination of higher flat prices, freight and risk-reversal skew alongside softer prompt spreads and weaker physical differentials reads as a classic signature of a market pricing geopolitical optionality and tail-risk hedging demand, rather than responding to immediate scarcity.”
Goldman Sachs raised its near-term forecasts, citing smaller stockpile builds in developed economies, but still expects Brent to end the year at $60. Morgan Stanley similarly sees prices drifting back towards that level over time.
Freight rates have surged above $150,000 a day for the first time since 2020, according to Baltic Exchange data, emphasising how quickly geopolitical tension can ripple through energy supply chains.