Oil surges as Hormuz tensions flare amid Trump threats and stalled Iran talks

Oil markets jolted higher on Monday morning as the Strait of Hormuz, one of the world's most critical shipping channels, ground to a near halt. The move came after Iran announced it had closed the waterway again, accusing the United States and Israel of violating terms of a fragile interim peace agreement signed just days earlier. Brent crude futures climbed 54 cents to $81.11 a barrel, while U.S. West Texas Intermediate jumped 2.64 percent to $78.62, a sharp reversal from the previous week's optimism.

The timing was stark. On Sunday, as U.S. Vice President JD Vance sat down with Iranian officials for their first formal talks under the new deal, President Trump posted threats of renewed military action against Iran on social media. The contradiction was not lost on markets or analysts. Saul Kavonic, head of energy research at MST Marquee, noted that traders had been too quick to assume the Strait would stay open. "Iran is likely to continue to find pretexts to stymie flows through the Strait," he said, "as that remains their only point of leverage into the mid-terms which they are unlikely to let go of."

The immediate trigger was violence in Lebanon. Israeli strikes killed at least 20 people on Saturday, according to Lebanon's state news agency, just one day after a ceasefire with Hezbollah was supposed to take effect. Iran cited these violations as justification for closing the Strait. Tehran also complained that the United States had failed to uphold its own commitment to halt fighting in the region. The ceasefire, meant to end months of escalating conflict, was already fraying.

Last week had told a different story. Oil prices had fallen more than 8 percent as traders bet on a genuine thaw. The expectation was straightforward: stranded Iranian oil cargoes would flow out of the Persian Gulf, U.S. sanctions on Iranian crude would lift as part of the deal, and regional supply would expand. Iraq announced plans to gradually restore production to between 4.2 and 4.3 million barrels per day. The United Arab Emirates, Kuwait, and Iraq all signaled they would offer more oil to customers. Hamid Bovard, head of Iran's National Oil Company, told state television that over 25 million barrels of Iranian crude had already moved through the virtual blockade since Monday of the previous week.

But the closure of the Strait reversed that momentum in hours. IG market analyst Tony Sycamore warned that Lebanon remained "a serious ongoing threat to both the ceasefire and the reopening of the Strait." The peace deal, it seemed, was holding only as long as both sides refrained from testing it. The moment either did—or appeared to do—the arrangement began to crack. With Trump threatening fresh attacks even as negotiations were underway, and with Israeli operations continuing despite the ceasefire, the interim agreement looked less like a foundation and more like a temporary pause in a much longer conflict. For oil markets, that uncertainty meant volatility would likely persist.