Global crude benchmarks began retreating Tuesday (May 5) as the Pentagon moved to ease market panic, confirming that the ceasefire between Washington and Tehran remains intact despite the heaviest military clashes since the truce took effect in early April.
International benchmark Brent crude futures dropped more than 2 percent to US$111.45 per barrel by Tuesday morning in New York, while US West Texas Intermediate (WTI) futures shed over 3 percent to trade at US$102.65.
The market whiplash stems from the launch of a US military operation aimed at reopening the Strait of Hormuz to commercial shipping. The critical waterway, which handles a fifth of the world’s oil and natural gas, has been largely paralyzed, trapping roughly 1,550 vessels.
Defense Secretary Pete Hegseth described the naval escorts as distinct from the broader war, maintaining that the current hostilities do not constitute a rupture of the April 8 truce.
Those skirmishes, however, proved deadly on Monday (May 4). After the US escorted two domestic-flagged commercial vessels, including the Maersk-operated Alliance Fairfax, through the strait, Washington reported destroying seven small Iranian military boats.
Tehran, conversely, stated that a US attack hit a passenger boat in the Gulf, killing five civilians.
Concurrently, Iran launched drone and missile attacks on the UAE, injuring three people at the Fujairah Petroleum Industries Zone, while a South Korean vessel was also reportedly struck near the strait.
The Pentagon insists its naval escorts will proceed. President Donald Trump, however, struck a more combative tone, warning Monday that Iran would be “blown off the face of the earth” if it targets American ships.
Addressing the domestic economic fallout on Tuesday, Trump framed the inflationary pressures as a necessary geopolitical cost. “It’s a very small price to pay for getting rid of a nuclear weapon from people that are really mentally deranged,” he told reporters.
Tehran, meanwhile, rejected the US narrative, maintaining that its own blockade remains effective. Iranian Foreign Minister Abbas Araghchi stated that the recent clashes “make clear that there’s no military solution to a political crisis.”
Pointing to diplomatic backchannels, Araghchi added: “As talks are making progress with Pakistan’s gracious effort, the US should be wary of being dragged back into quagmire by ill-wishers. So should the UAE.”
Beyond the geopolitical volatility, energy executives warn that the physical supply chain is fracturing. In a sign of the market’s distress, OPEC producer Iraq is reportedly offering steep crude discounts to term buyers willing to navigate the strait this month.
Goldman Sachs (NYSE:GS) estimates total global oil stocks currently cover 101 days of demand, but cautioned that easily accessible buffers of refined products like naphtha, LPG, and jet fuel are depleting rapidly.
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Securities Disclosure: I, Giann Liguid, hold no direct investment interest in any company mentioned in this article.
