U.S. forces struck Iranian rocket launchers on Larak Island in the Strait of Hormuz on Sunday, breaking a month-long lull and triggering Iranian retaliation early Monday. Oil prices climbed and Asian shares mostly fell as traders priced in renewed risk to the world’s busiest crude corridor.
Brent crude, the international benchmark, rose 2.9% to $90.61 per barrel in early Monday trading. U.S. benchmark crude gained 2.7% to $85.66 per barrel. The exchange of fire was the first between the two sides in more than a month, following a period in which Washington had shifted toward economic pressure on Tehran.
Iran’s army said it launched a drone attack on U.S. forces at al Minhad airbase in the United Arab Emirates early Monday, calling it a response to the Larak Island strike. The UAE defence ministry said its air force intercepted an Iranian drone over its territorial waters and that the armed forces remained on high alert.
A supertanker struck mines and caught fire in the region, adding to fears over shipping safety in a strait that carries a large share of seaborne oil. Larak Island lies close to Iran’s coastline near the mouth of the waterway.
“The Middle East had finally gone quiet enough for oil traders to start sanding some of the war premium out of crude,” said Stephen Innes of SPI Asset Management. “Then Sunday arrived, with a reminder that quiet in the Strait of Hormuz is not the same as peace.”
The renewed hostilities follow an earlier stretch when markets had calmed after both sides paused strikes, a move that had eased pressure on fuel markets before this weekend’s escalation.
Equity markets moved lower on separate concerns. Asian shares slipped after a Friday speech by Federal Reserve Chairman Kevin Warsh reinforced expectations that the U.S. central bank could raise interest rates to bring inflation down. Futures for the S&P 500 and the Dow Jones Industrial Average each slipped 0.3%.
In Tokyo, the Nikkei 225 lost 0.4% to 66,164.66, while South Korea’s Kospi declined 0.5% to 6,757.67. Hong Kong’s Hang Seng fell 0.4% to 25,479.52, and the Shanghai Composite gained 0.4% to 3,967.94.
Shares in e-commerce and fast-fashion company Shein are due to begin trading in Hong Kong on Tuesday in the city’s largest initial public offering this year.