Oil prices extended gains Tuesday amid fears of a fresh bout of military exchanges between the United States and Iran following a flare-up at the weekend and Donald Trump's warning that he will hit the country "hard".
The latest bout of strikes between the foes has further stoked worries about inflation that has put pressure on central banks to hike interest rates, which has in turn jolted equity markets.
After six months of war, the conflict remains at an impasse, with Tehran keeping the strategic Strait of Hormuz closed and Washington continuing a counter-blockade of Iranian ports.
The United States carried out strikes on an Iranian island in the waterway on Sunday, with Tehran quickly retaliating by attacking US military targets in the Middle East. The exchange raised fears of a return to major hostilities, with the US president vowing to respond.
"We're going to hit them hard," Trump said, according to a Fox News reporter who spoke to him briefly. "There will be a response." US officials said it hit rocket launchers on the island of Larak to prevent Tehran planting mines in the strait, while Iran targeted US forces in Jordan and the United Arab Emirates.
The exchange of fire came after weeks of relative calm, with the Trump administration recently pivoting to "economic warfare". US Treasury Secretary Scott Bessent said: "We are going to continue exerting pressure, and we've had very good discussions here already."
He told reporters at a G20 meeting in North Carolina that a turning point in the pressure campaign could come "within weeks or months". Both main crude contracts rose Tuesday, extending the previous day's jump of more than two percent. "The calibrated nature of the initial actions suggests neither side is actively seeking a return to sustained conflict, but stalled talks and the strategic importance of keeping the Strait open leave the situation vulnerable to further escalation," said National Australia Bank's Rodrigo Catril.
Trump will be meeting oil refining executives on Tuesday in a bid to tame soaring US domestic gas prices that have been a political headache for his Republican Party heading into November's midterm elections.
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