Brent crude rose to approximately $117 a barrel on Wednesday afternoon, marking its highest price this month. The surge follows reports from the Wall Street Journal that US President Donald Trump has instructed aides to prepare to extend the ongoing blockade of Iran's ports to squeeze the country's economy.
The price spike follows a period of volatility, with oil closing at just over $1 enough to $110 a barrel on Tuesday evening. The current rise comes as the Strait of Hormuz has been effectively closed for weeks due to the conflict, impacting a waterway that usually carries about one-fifth of the world's supply of oil and liquid natural gas.
Economic impact in Iran
Iran’s national currency has plummeted to new lows as authorities attempt to manage the impact of the naval blockade. The Iranian rial shot above 1.81 million to the US dollar on the open market by early afternoon on Wednesday, compared to a rate of approximately 811,000 per US dollar one year ago.
To mitigate the crisis, the Iranian government has allocated $1 billion from its sovereign wealth fund to purchase food. Tehran has also attempted to reduce red tape in border provinces to allow for the import of essential goods and has implemented a partial policy U-turn to restart a preferential subsidized exchange rate.
However, the economy faces deepening pressure from unchecked inflation and the blockade. US Central Command stated on Tuesday that the blockade has "cut off economic trade going into and coming out of" the country.
Escalating maritime tensions
Iran has vowed to continue disrupting traffic through the Strait of Hormuz in response to the US blockade. This follows US and Israeli strikes that began on February 28, which led to severe restrictions on shipping through the strait.
The US has announced that its forces will intercept or turn back vessels traveling to or from Iran's ports. Analysis by BBC Verify shows that at least four vessels tracked from Iranian ports appear to have crossed the US blockade line.
In Washington, Defense Secretary Pete Hegseth faced questioning from lawmakers for the first time since the Trump administration launched the war against Iran. Democrats have contested the conflict, characterizing it as a costly war of choice waged without congressional approval.
Global market risks
While the price of Brent crude dropped to $90 a barrel on April 17 following a ceasefire between Israel and Lebanon, the benchmark has risen steadily over the last 12 days. The US previously announced it would pause attacks on Iran on April 8.
Lindsay James, an investment strategist at Quilter, noted that while the UK impact has been largely limited to higher petrol and diesel prices, the risk of shortages is growing. "Every day that passes without a resumption of supply sees the risk of physical shortages and steeper price rises on a range of goods increasing," James said.
