Oil futures rose nearly 2% at the start of the week after a prior decline of more than 4% within a sideways trading range.
The increase followed renewed skirmishes in the Middle East, though the attacks remained contained and price gains were limited. The United States conducted a strike on Iran’s Larak Island, targeting rocket launchers reportedly prepared to fire naval mines toward the Strait of Hormuz, according to U.S. Central Command. Iran’s Revolutionary Guard separately launched missiles at U.S. targets in Jordan. President Donald Trump also claimed an attack on Kharg Oil Island, a claim denied by Iran and unsupported by evidence.
Analysts noted that the U.S. appears to be balancing the need to protect oil flows through the Strait of Hormuz while avoiding broader escalation in the near term. The approach reflects efforts to maintain stability in global oil supply amid ongoing regional tensions.
High energy prices continue to weigh on U.S. consumers ahead of midterm elections. Gasoline and diesel prices remain elevated, with the national average for diesel at $5.60 per gallon—up more than 50% from last year, according to AAA Fuel Prices. Diesel futures are trading near $4.30 per gallon, close to 2022 highs. Treasury yields have also surged, with the 10-year yield approaching 4.7%, levels not seen since 2007.
Inflation concerns persist, with Federal Reserve policy signals reinforcing expectations for tighter monetary conditions. Market pricing indicates a nearly 47% probability of a 50-basis-point rate hike by year-end, according to CME FedWatch data. Elevated energy costs and restrictive financing conditions present challenges for U.S. policymakers ahead of the elections.
Strategic constraints further limit the scope for escalation. A report in The Washington Post cited U.S. military leaders warning that prolonged operations against Iran risk overextending forces and weakening deterrence elsewhere. Admiral Daryl Caudle, Chief of Naval Operations, cautioned that the Navy cannot sustain current support levels without a defined end date. General Dan Cain, Chairman of the Joint Chiefs of Staff, previously advised the White House that the U.S. lacks sufficient ammunition and allied backing for a broader campaign.
Analysts suggest oil prices may remain trapped in a sideways pattern until elections in Israel and the U.S. conclude. With no immediate path to negotiations and both sides showing little inclination toward concessions, the risk of further skirmishes persists, though broad escalation appears unlikely in the near term.
