Oil prices edged higher on Friday and remained on course for their strongest weekly gains in months as renewed military escalation between the United States and Iran heightened fears of prolonged disruptions to global energy supplies, while investors weighed the growing possibility that conflict could spread beyond the Strait of Hormuz to the Red Sea.
Brent crude rose 0.08% to $84.30 a barrel, while U.S. West Texas Intermediate (WTI) gained 0.2% to $79.11. Both benchmarks have climbed roughly 12% this week, with Brent heading for a third consecutive weekly advance and WTI on track for a second straight weekly gain.
The latest gains reflect an expanding geopolitical risk premium as traders assess not only reduced flows through the Strait of Hormuz but also the possibility that another critical shipping corridor could come under threat.
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According to Reuters sources, Iran has instructed its Houthi allies to prepare to shut the Red Sea shipping route if Washington expands its military campaign to target Iranian power infrastructure. Such a move would expose global energy markets to simultaneous disruptions at two of the world’s most strategically important maritime corridors.
“The potential threat of the Red Sea becoming another major supply disruption point is further complicating the global oil outlook,” said Tim Waterer, chief market analyst at KCM Trade.
He described the situation as a “dual-risk scenario,” noting that geopolitical concerns continue to keep a substantial premium embedded in crude prices.
The latest escalation comes after the fragile memorandum of understanding reached last month effectively collapsed. For the first time since the temporary ceasefire, U.S. forces launched two major waves of air strikes in a single day on Wednesday, targeting military facilities along Iran’s southern coastline before continuing operations on Thursday and Friday.
The U.S. Central Command said American forces had begun “a new wave of strikes against Iran for the sixth consecutive night to further degrade Iranian military capabilities.”
Iran has responded with missile and drone attacks targeting U.S. military installations across the region. Qatar said its air defenses intercepted Iranian missiles early Friday, although authorities reported that a child was injured by debris from the interception. Tehran has also reportedly launched attacks against American facilities in neighboring countries, including a barrage targeting a recently expanded U.S. air base in Jordan.
The widening conflict has amplified concerns over energy security.
“Oil security is still a critical issue,” International Energy Agency Executive Director Fatih Birol said during an event at the Council on Foreign Relations in Washington.
“We should be worried, and I am worried, if the situation does not improve in the next few weeks,” he said.
Treasury Yield Fell
While military developments pushed oil prices higher, U.S. Treasury markets moved in the opposite direction as investors focused on signs that inflation pressures remain contained despite elevated energy costs.
The benchmark 10-year Treasury yield fell more than four basis points to 4.5254%, while the policy-sensitive two-year yield dropped to 4.1134%. The 30-year Treasury yield also eased to 5.0680% as investors increased demand for government bonds.
The decline followed a series of economic reports that suggested inflation is cooling while the labor market remains resilient. Producer and consumer inflation both came in below expectations this week, while initial jobless claims for the week ended July 11 totaled 208,000, indicating continued strength in employment.
The combination of softer inflation and steady labor market conditions has reduced expectations that the Federal Reserve will resume interest rate increases in the near term, even as policymakers remain cautious about the inflationary effects of higher oil prices.
Markets now assign only an 11% probability of a July rate hike, down sharply from around 25% a week earlier, according to CME FedWatch data. Investors are pricing in approximately 26 basis points of additional tightening by December.
“I don’t think July is live for rate hikes,” said Tani Fukui, senior director of global economic and market strategy at MetLife Investment Management.
“We expect neither rate hikes nor cuts in 2026.”
How The Currencies Faired
Currency markets reflected the competing forces of easing inflation expectations and heightened geopolitical uncertainty.
The U.S. dollar was little changed against a basket of major currencies but remained supported by safe-haven demand. The dollar index traded at 100.69 and was still on course for a weekly decline of about 0.3% after weaker inflation data reduced expectations for additional Fed tightening.
“There has been no let-up in the escalation of the conflict in the Middle East which continues to curtail appetite to sell the dollar,” said Derek Halpenny, senior currency strategist at MUFG.
He added that stronger-than-expected U.S. economic data had also limited downside pressure on the currency.
The euro held steady near $1.145 and remained on track for weekly gains, while sterling was poised for its third consecutive weekly advance as concerns over the U.K.’s fiscal outlook continued to ease.
The Japanese yen remained near multi-decade lows despite repeated warnings from Tokyo about possible currency intervention, highlighting the persistent divergence between Japanese monetary policy and higher U.S. interest rates.
Beyond the immediate military developments, analysts say markets are increasingly focused on the broader implications for global energy infrastructure. While the Strait of Hormuz remains the world’s most important oil transit route, any coordinated disruption involving both Hormuz and the Red Sea would significantly constrain the ability of Gulf producers to reroute exports, potentially tightening supplies further and increasing volatility across commodity, currency and fixed-income markets.
Technical analysts also see room for additional gains if the conflict intensifies. Analysts at IG said WTI could climb into the mid-$80-per-barrel range if prices continue holding above key technical support in the mid-$70s.