Oil surges 5% as Pentagon weighs Iran strikes and tanker attacks hit record high

Thursday saw oil prices jump by as much as 5% following reports that the White House had directed the Pentagon to prepare options for a significant new offensive against Iran — adding to anxieties already heightened by a record number of tanker attacks in the Strait of Hormuz and a hurricane approaching the refining centers along America's Gulf Coast.

Brent crude, the international benchmark, rose to $105.3 a barrel in European trading. West Texas Intermediate, the US benchmark, gained roughly the same margin to around $92.48–$92.75 a barrel. The jump rippled immediately into stock and bond markets, pushing government borrowing costs to multi-year highs and sending equities lower across Asia and Europe.

The market move was triggered by a report from The Atlantic, cited by The Guardian, that the White House had asked the Pentagon to draw up options for strikes against Iran before next month's US midterm elections. Unnamed officials in Donald Trump's administration, cited by the report, said deliberations over the scale, targets and ultimate decision on any strikes remained ongoing. No date has been set. According to Euronews, Iranian energy facilities, infrastructure and nuclear sites are among the potential targets under consideration.

An Israeli official told Axios that the chances of an attack before the midterms were "not high but we don't rule it out," according to Euronews. The Guardian reported that a 'limited operation' could be followed by more substantial action after the midterms. According to Euronews, even those who favor potential strikes acknowledge they are unlikely to draw Iran back to the negotiating table or reopen the Strait of Hormuz to safe passage — but argue the action could bolster Trump's image of strength before the vote.

The threat of escalation comes as the US-Iran war, which began in February, enters its eighth month with no resolution in sight. Attacks on tankers in the Strait of Hormuz — the narrow waterway through which a significant share of the world's seaborne oil passes — have already reached their highest levels of the conflict. Shipping data firm Kpler, cited by CNN, recorded ten tanker strikes in the strait between September 28 and October 4, surpassing the previous weekly peak of six. Preliminary figures from Kpler indicated that only seven tankers passed through the strait on Tuesday — fewer than half the seven-day average and the lowest tally since July 23.

Wednesday brought the most recent incident, with a tanker reporting hits from "multiple projectiles" that resulted in casualties, according to the UK Maritime Trade Operations agency, as cited by both CNN and The Guardian.

There is a clear tug-of-war at the moment between improving supply from the region and lingering threats to supply. The only way to see prices trade sustainably lower is for lingering risks to be addressed.— Commodities strategists, ING bank

A third pressure on prices came from the Gulf of Mexico, where Tropical Storm Isaias strengthened into the first hurricane of the Atlantic season. Both Shell and Chevron announced they were halting output and pulling out nonessential staff as the storm, expected to come ashore on Friday or Saturday, closed in on the area. Euronews reported that more than 500,000 barrels a day of Gulf of Mexico production had been taken offline by US producers in advance of the storm.

The International Energy Agency said on Wednesday that its member governments would accelerate releases from emergency oil stockpiles already pledged in March, prioritising diesel where possible. Roughly 325 million of the 400 million barrels agreed to in March have been released, with approximately 100 million more still to reach the market, the IEA said. The agency added it stood ready to release more stocks 'if and when required,' according to CNN. European diesel benchmark ICE Gasoil Futures closed 6% higher on Wednesday after the IEA statement, CNN reported.

Danish shipping giant Maersk added to energy cost concerns on Thursday, announcing it was raising its emergency fuel surcharge on all export and import deliveries, according to The Guardian.

The oil price spike fed directly into broader financial markets. Rising energy costs stoked inflation fears, reinforcing expectations that central banks will need to keep interest rates higher for longer. According to The Guardian, Britain's 10-year government bond yield climbed to 5.515% on Wednesday — its highest point since July 2007 — while the 30-year gilt yield reached 6.036%, a level not seen since January 1998, before pulling back somewhat. France's 10-year yield rose to 4.931%, just below the 24-year high it hit last week. The US 10-year Treasury yield rose to 5.331%, near a multi-decade high.

The rising cost of government borrowing adds to the challenges facing UK Chancellor John Healey ahead of his first budget, due on October 28, The Guardian noted.

European stock markets fell at the open, with Germany's DAX down 0.76%, London's FTSE 100 dropping 0.75%, France's CAC 40 off 0.64%, and the Euro Stoxx 50 losing 1.06%, according to Euronews. In Asia, Japan's Nikkei fell 1.4% and South Korea's Kospi dropped 2.6%. Markets also fell in Hong Kong, Sydney, Shanghai, Singapore, Wellington, Taipei and Manila.

Notes from the US Federal Reserve's September meeting, published Wednesday, indicated that a majority of officials viewed an additional rate increase before the end of the year as probable. Euronews reported that the Fed had lifted rates in September — its first such move since July 2023 — by a quarter of a percentage point, bringing the target range to 3.75% to 4%, amid persistent US inflation above the central bank's 2% goal.

At US gas stations, average diesel prices stood at $6.28 a gallon on Thursday, with regular gasoline flat at $4.36 a gallon, according to AAA data cited by CNN. What happens next depends heavily on whether the White House moves forward with strikes — a decision that, according to officials cited in reports, has not yet been made.

Why it matters — A potential new US military offensive against Iran, combined with record tanker attacks on the world's most critical oil chokepoint, is pushing energy prices to levels that are reigniting inflation and raising borrowing costs for governments and consumers globally.

Reported by euronews.com, reuters.com, cnn.com, theguardian.com