U.S. oil prices top $116 a barrel after reports that Iran's Kharg Island is targeted with multiple strikes

By Isabel Wang and Steve Goldstein

Kharg Island is a critical site for Iran, handling approximately 90% of the country's crude exports

New strikes rocked Tehran on Tuesday, but Iran showed no sign of backing down as a U.S. deadline for reopening the Strait of Hormuz loomed.

Oil prices were rising Tuesday morning after reports that the U.S. conducted strikes on military targets on Kharg Island, hours before President Donald Trump's unilaterally imposed deadline for Iran to reopen the Strait of Hormuz to shipping or face attacks on its civilian infrastructure.

U.S. benchmark West Texas Intermediate crude for May delivery (CLK26) (CL.1) was up nearly 3.5%, to trade at $116.31 a barrel, on pace to settle at its highest level since June 16, 2022. June Brent crude (BRNM26) (BRN00) was up 0.9%, at $110.68 a barrel.

Both WTI and Brent have risen for three consecutive sessions, according to Dow Jones Market Data.

The Wall Street Journal reported that the U.S. struck more than 50 military targets on Kharg Island on Tuesday morning Eastern time. The attacks did not include oil infrastructure, according to two U.S. officials.

Kharg Island, a small Iranian outpost in the Persian Gulf, is a critical site for Iran, handling approximately 90% of the country's crude exports. The U.S. hit military targets on Kharg Island last month but left crude infrastructure intact. If the U.S. were to seize loading terminals, pipelines and storage tanks on Kharg, that would represent a significant escalation of the conflict.

See: Iran's Kharg Island may be the next battleground, as Trump extends pause on attacking energy infrastructure

Also on Tuesday, Trump sharply ramped up his threats against Iran, warning that "a whole civilization will die tonight" unless the country's leadership strikes a deal that involves reopening the Strait of Hormuz.

The president previously set an 8 p.m. Eastern time deadline for a deal with Iran that would open up the crucial strait, and he threatened to attack power stations and bridges in the country if the deadline is not met. Attacking civilian infrastructure could be considered a war crime under international law.

Iran so far hasn't shown signs of conceding, and there were doubts on Wall Street that Trump would carry through on the threat.

"Having experience of the president's shock and awe style of negotiation before, I would suspect that the attack will be called off at the last second," said David Stritch, a currency analyst at Caxton.

Oil prices could average $125 a barrel in April if the conflict drags on

Commodities analysts at Société Générale laid out three scenarios in a new analysis on Tuesday. One scenario, in which Iran imposes transit fees through the strait, would be manageable, and the country could raise revenue of up to 4% of gross domestic product from a levy of between 26 cents and 43 cents per barrel for oil, said a team of analysts led by Mike Haigh, global head of fixed income and commodities research.

However, the toll system would risk "institutionalizing insecurity" rather than solving the current friction.

The second scenario posits that if the conflict drags on into May, crude prices could average $125 per barrel in April before easing only gradually thereafter.

In a third scenario, where not just the Strait of Hormuz but also a second strait - the Bab el-Mandeb - is effectively shut, oil prices could surge beyond $200, as Saudi flows and Russian Red Sea exports would also be affected, the SocGen analysts said.

-Isabel Wang -Steve Goldstein

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(END) Dow Jones Newswires

04-07-26 1150ET