Crude Oil surges past $105 as the Strait of Hormuz closure deepens global Supply risks. The IEA warns of undersupply through October as Trump-Xi diplomacy yields uncertain results

Key Highlights

  • WTI crude futures rose over 3.8%, on track for a weekly gain exceeding 9%.
  • The Strait of Hormuz remains effectively closed, keeping global oil supply under severe strain.
  • President Trump signalled escalating impatience with Iran, warning a deal must be reached soon.
  • The IEA cautioned that crude markets could remain severely undersupplied through October 2026.
  • Trump-Xi summit produced unconfirmed commitments on energy purchases and Hormuz reopening.

Supply Shock Takes Hold

Global oil markets registered sharp gains on Friday as the continued closure of the Strait of Hormuz sustained one of the most significant supply disruptions in recent memory. WTI crude futures climbed more than 3.8% to above $105 per barrel, while international benchmark Brent advanced past $109 per barrel. Both contracts are on course for weekly gains exceeding 9%, reflecting how deeply the market has repriced supply risk since tanker traffic through Hormuz ground to a near halt.

The Strait of Hormuz handles roughly one-fifth of the world's seaborne oil trade. With only a small number of vessels managing to exit the Persian Gulf since the conflict began, the structural impact on global crude availability has been immediate and measurable. Inventories are tightening across major consuming economies, and freight costs on alternative routes have risen considerably.

Trump Signals Shifting Posture on Iran

President Donald Trump moved to sharpen Washington's rhetorical stance on Iran following his summit with Chinese President Xi Jinping in Beijing. In an interview aired Thursday evening, Trump stated he was running out of patience, urging Tehran to engage in negotiations. The comments marked a departure from earlier signals that suggested the United States was prepared to tolerate the disruption.

Trump said Xi had expressed a desire to see the Strait reopened, noting that China objected to Iran collecting tolls from vessels attempting to transit Hormuz. Xi also reportedly agreed not to provide military equipment to Iran, a commitment that, if sustained, could shift the strategic calculus around the conflict's duration.

US Treasury Secretary Scott Bessent indicated that Beijing was prepared to work behind the scenes to facilitate Hormuz's reopening, describing it as firmly in China's economic interest. China's foreign ministry, however, made no direct mention of Hormuz in its public statements, offering only a broader call for diplomatic resolution and characterising the use of force as without merit.

Energy Markets Face Prolonged Undersupply Risk

The International Energy Agency issued a stark assessment this week, warning that global oil markets could remain severely undersupplied until at least October 2026, even if active hostilities were to cease as early as next month. The lag between a ceasefire and any meaningful normalisation of tanker flows through Hormuz introduces a structural delay that the market is beginning to price more explicitly.

This undersupply dynamic carries significant implications for Inflation trajectories in both advanced and emerging economies. Energy represents a primary input cost across transportation, Manufacturing, and agriculture. A sustained crude price above $100 per barrel historically feeds into broader consumer price indices within two to three quarters, complicating the task of central banks attempting to anchor inflation expectations.

Geopolitical Premium Entrenched, Not Temporary

What has become increasingly apparent is that the current oil price elevation reflects a durable geopolitical premium rather than a transient spike. Markets had initially absorbed the Hormuz disruption with relative composure, in part because diplomatic channels appeared active. The pace of negotiations has since slowed, and with the IEA flagging a multi-month supply Deficit, the forward curve for crude is adjusting to reflect a more persistent risk environment.

The Trump-Xi summit produced a range of signals. China's potential role as a backchannel mediator is relevant, given its position as the world's largest crude importer and its existing economic relationships with Iran. However, the gap between private diplomatic commitments and verifiable action remains wide. Beijing has yet to confirm the reported agreement to increase US oil purchases, and its public posture on Hormuz has been measured.

For energy markets, the critical near-term variable is whether diplomatic progress can be demonstrated credibly enough to begin relieving tanker traffic restrictions. Until that evidence materialises, crude prices are likely to remain elevated, with supply tightness providing a firm structural floor.