Oil prices opened the week with strong gains of more than 3% as the military escalation between the United States and Iran renewed concerns over the security of global supplies, particularly after Tehran announced the closure of the Strait of Hormuz and commercial shipping activity slowed over the weekend.
Brent crude futures for September delivery rose 3.2% to $78.46 per barrel, while West Texas Intermediate crude climbed 3.4% to $73.83 per barrel. Both contracts extended their gains after advancing more than 4% during the previous week.
The rally followed Iran’s decision to expand its missile and drone attacks to Qatar and the United Arab Emirates in response to US military strikes, along with an attack on a commercial vessel in the strait. Although Washington maintained that shipping remained open under US protection, the sharp slowdown in maritime activity strengthened market concerns that the conflict was beginning to affect oil flows.
The Strait of Hormuz plays a central role in global energy markets as the main export route for crude oil from Saudi Arabia, Iraq, Kuwait, the United Arab Emirates and other Gulf producers. A prolonged disruption could force Asian refiners to seek alternative supplies while driving freight and insurance costs higher.
Markets are also watching for a possible coordinated response from major oil producers to increase supply, or a decision to release crude from strategic reserves if the disruption worsens. However, stalled diplomatic efforts between Washington and Tehran have restored the geopolitical risk premium in oil prices after it had eased during recent weeks.
Gold came under renewed selling pressure at the beginning of the week as investors shifted their attention away from safe haven demand linked to geopolitical tensions and toward the inflation risks created by rising energy prices.
Spot gold fell 1.54% to $4,057.76 per ounce, while gold futures declined 1.17% to $4,065.45 per ounce. Selling also extended to other precious metals, with silver losing 2.80% and platinum falling 1.61%.
Pressure on precious metals intensified following renewed US and Iranian strikes and a rise of about 3% in oil prices amid concerns that crude flows through the Strait of Hormuz could be disrupted. A sustained increase in energy costs could push inflation higher again, encouraging the Federal Reserve to keep interest rates elevated or deliver another increase before the end of the year.
Minutes from the Federal Reserve’s June meeting reinforced these concerns after showing that several policymakers believed there was a case for raising interest rates. Officials placed greater emphasis on inflation risks while concerns about the labour market eased. Markets are now awaiting the US consumer price index report and Federal Reserve Chair Kevin Warsh’s testimony before Congress ahead of the central bank’s meeting on July 28 and 29.
A stronger than expected inflation reading could support the dollar and lift Treasury yields, placing additional pressure on gold. In contrast, weaker inflation data could help the metal stabilise and recover part of its recent losses, particularly after the US Dollar Index rose 0.3%.
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