Oil prices eased modestly in Wednesday’s Asian trading session, following a sharp 4% rise the previous day driven by escalating tensions between Iran and Israel.
Investors are now balancing fears of potential supply disruptions with uncertainty around US monetary policy.
Brent crude futures dropped by 0.5%, or 35 cents, to $76.10 a barrel, while US West Texas Intermediate (WTI) crude slipped 0.3%, or 23 cents, to $74.61 as of 0723 GMT.
The latest price movements come amid ongoing conflict in the Middle East, which has seen Israel strike several oil and gas facilities in Iran, including the South Pars gas field and the Shahr Rey oil refinery. While global energy flows remain mostly undisturbed, markets are on edge over the possibility of further escalation or direct US involvement.
On Tuesday, President Donald Trump called for Iran’s “unconditional surrender,” intensifying rhetoric that analysts say adds to a geopolitical risk premium of $5 to $10 currently priced into oil markets.
The Strait of Hormuz—a key route for roughly 20% of the world’s seaborne oil—is a focal point of concern. Although Iranian oil exports have not been significantly disrupted, analysts warn that any major attack on export terminals like Kharg Island or attempts to block the strait could severely impact global supply.
“Iran is OPEC’s third-largest producer and a significant player, but spare capacity among OPEC+ nations could potentially offset a sudden loss,” Fitch analysts noted.
The group estimates that OPEC+ has roughly 5.7 million barrels per day in spare capacity.
Despite the geopolitical risks, attention is also focused on the US Federal Reserve, which is expected to leave interest rates unchanged as it concludes a two-day policy meeting. Analysts suggest that if economic pressures persist—such as slowing retail sales and a weakening labor market—the Fed could consider a rate cut as early as July.
“Geopolitical instability may become a catalyst for the Fed to adopt a more dovish tone, similar to its stance after the October 2023 Hamas attack,” said IG market analyst Tony Sycamore.
Lower interest rates typically boost oil demand by stimulating economic growth. However, the conflict’s inflationary potential could complicate the Fed’s decision-making. While oil prices have jumped in recent days, broader indicators—such as softening demand in travel and recreation services—suggest inflation may not spread widely, according to Citi analysts.
With input from Reuters and Al Jazeera.
