Oil ticks higher as Gulf clashes threaten to derail ceasefire

[NEW YORK] Oil edged higher as traders speculated on whether fresh clashes between the US and Iran would derail a fragile ceasefire, dimming hopes a peace deal may be struck soon.

Brent crude, the global benchmark, rose 1.2 per cent to settle around US$101 a barrel, but still notched a weekly drop of about 6 per cent. Renewed fighting in the Persian Gulf rattled markets even as US officials said they expect Iran to respond to its latest proposal to end the war imminently and reopen the vital shipping route, the Strait of Hormuz. 

The oil market’s focus remains on the strait, which has been effectively closed since the war began at the end of February. That has triggered an unprecedented supply shock, with flows of crude choked off and wells across the region shut in.  

Iran criticised the US on Friday (May 8) and said it had violated their ceasefire agreement. The country is also preparing a plan for the “legal regime” of the strait, according to a statement cited by the semi-official Tasnim news agency.

“Control of the Strait of Hormuz has emerged as Iran’s strongest bargaining chip,” Societe Generale analysts including Ben Hoff wrote in a note. “Recent vessel seizures and harassment underscored that while diplomacy is the base case, there is a material risk of renewed fighting.” BLOOMBERG