Oil Rises 2% as Middle East Hostilities Escalate

Oil extended gains by around 2% on Wednesday as President Donald Trump reimposed a naval blockade on all Iranian ports and Iran's Islamic Revolutionary Guard Corps threatened to close "all other export corridors that benefit the U.S. and its allies".

Brent futures LCOc1 climbed $1.71, or 2%, to $86.44 a barrel at 0806 GMT. West Texas Intermediate futures CLc1 gained $1.43, or 1.8%, to $80.77 a barrel.

Oil prices settled up 2% at a one-month high on Tuesday as attacks exacerbated a supply disruption in the Strait of Hormuz, through which about a fifth of the world's oil and liquefied natural gas passed prior to the beginning of the Iran war.

"Regional energy exports are either shared by all, or denied to all," Iran's Islamic Revolutionary Guard Corps said in a statement carried by Iran's IRNA state news agency on Wednesday.

Analysts have said Iran has been signalling it may use its Houthi allies in Yemen to shut the Bab el-Mandeb gateway to the Red Sea, opening a new front against Washington and putting two of the world's most vital energy arteries at risk.

Hostilities between Iran and the U.S. reignited last week, fraying an already fragile truce reached in June after several months of fighting.

Early on Wednesday, the U.S. began a fresh round of strikes to continue degrading Iranian capabilities used to attack commercial shipping in the Strait of Hormuz, the U.S. military said.

"I'll save the energy targets for last, but ultimately we'll hit energy targets," Trump told Fox News in an interview aired Tuesday night on "Special Report with Bret Baier".

"The U.S. naval blockade of ships coming/going to Iranian ports is tightening the oil market, considering that Iranian crude exports were around 1.5 million to 2 million barrels per day in the last two weeks," said UBS analyst Giovanni Staunovo.

Goldman Sachs estimated in a note that Gulf exports recovered to more than 80% of pre-war levels after the U.S.-Iran memorandum of understanding in June but slipped back below 50%, or about 11 million bpd, over the last week.

The bank said Brent could exceed $110 in the fourth quarter this year if Gulf export recovery continues to stall.

Iran's army said early on Wednesday that it had launched drone attacks against U.S. positions at Jordan's Azraq base. There was no immediate comment from the Pentagon.

Meanwhile, Iran's Islamic Revolutionary Guard Corps said it targeted weapons and storage facilities in Bahrain and Kuwait. Reuters could not immediately verify the reports.

(Reuters - Reporting by Stephanie Kelly in London and Jeslyn Lerh in Singapore; Additional reporting by Helen Clark in Perth; Editing by Lincoln Feast, Thomas Derpinghaus and Joe Bavier)

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