U.S. escort plan, Iranian threats lift oil above $110

Brent futures rose to $112.14 a barrel and U.S. crude to $105.62 as markets reacted to an escalated standoff in the Gulf. Prices had fallen earlier in the session to about $107.64 for Brent and $101.28 for WTI before reversing in afternoon trading.

The White House announced Project Freedom on Sunday to help commercial ships exit the blocked Strait of Hormuz. The Pentagon plans to assign about 15,000 service members to the operation and provide more than 100 aircraft, along with warships and drones operating from land and sea bases. The United States also maintains a naval blockade of Iranian ports that began in mid-April.

Iran’s unified armed forces commander, Ali Abdollahi, issued a direct warning to foreign navies and told commercial vessels not to transit the waterway without coordinating with Iranian authorities. Abdollahi said Iran “would strike any foreign military vessels attempting to enter the waterway.” Later reports claimed missiles struck a U.S. warship near the strait’s southern entrance; U.S. Central Command denied that any American naval vessels were hit and said forces remain focused on the escort operation.

Commodity traders said futures were pricing in the risk of an extended closure of the strait. Sparta Commodities noted that crude markets were responding to the growing chance that tanker traffic could be disrupted for a prolonged period. Analysts at ING said even if ships can leave, little inbound traffic is expected to return quickly.

U.S. retail gasoline averaged $4.44 per gallon, up from under $3 before fighting began on Feb. 28. Exxon Mobil Chief Executive Darren Woods cautioned that markets have not yet felt the full force of the supply shock and said inventories and strategic reserves that have cushioned the market could be drawn down if the strait stays closed. He projected Middle East output could fall by about 750,000 barrels per day compared with 2025 levels if the closure persists through the second quarter.

Traders, shipping firms and governments are watching whether Project Freedom can clear trapped vessels and whether Iran will follow through on threats against naval incursions. Diplomatic talks between Washington and Tehran have not produced an immediate plan to reopen the waterway.