Oil Edges Down as Middle East Tensions Simmer and US President Stokes Fear of Escalation

Oil edges down Wednesday following a sharp surge in prices the previous day, as geopolitical tensions in the Middle East remain high. Investors remain wary as Iran and Israel continued exchanging missile strikes for the sixth consecutive day, while aggressive rhetoric from U.S. President Donald Trump added uncertainty to the volatile market.

Crude prices initially spiked more than 4% on Tuesday, driven by fears of supply disruptions in the oil-rich region. However, Wednesday saw a slight pullback as traders weighed the likelihood of direct U.S. involvement and assessed broader market signals.

While markets hoped for signs of de-escalation, President Trump’s statements dashed expectations. Speaking after leaving the G7 summit in Canada a day early, he declared that his goal was a “real end” to the conflict—not just a temporary ceasefire.

His remarks, followed by a series of inflammatory social media posts, have only intensified fears of escalation. On his Truth Social platform, Trump posted, “UNCONDITIONAL SURRENDER!”—a stark message that hints at a hardline approach to Iran. In another post, he warned Tehran against attacking American interests: “We don’t want missiles shot at civilians, or American soldiers. Our patience is wearing thin.”

In perhaps his most provocative statement yet, Trump suggested the U.S. has pinpointed Iranian Supreme Leader Ayatollah Ali Khamenei’s location. “We know exactly where the so-called ‘Supreme Leader’ is hiding… We are not going to take him out—at least not for now,” he wrote.

These statements followed reports that Trump had initially told Israel not to pursue an assassination attempt on Khamenei, a position he now seems to be reversing. Analysts say such mixed signals are only adding to market jitters.

Oil Edges Down but Supply Concerns Linger

Though oil edges down slightly on Wednesday, analysts warn that the risk premium on crude prices remains elevated due to the unresolved crisis. Investors are particularly concerned about a possible disruption in the Strait of Hormuz—a strategic chokepoint for global Oil Edges flows.

According to a note from Commerzbank, roughly one-fifth of the world’s oil passes through the Strait. “Any disruption here would have a global impact,” the note said.

Stephen Innes of SPI Asset Management echoed these concerns. “Iran is reportedly ready to target U.S. regional bases should Trump authorize a strike on its nuclear facilities,” Innes said. “If Fordow is attacked, we can expect the Strait of Hormuz to become a maritime minefield, Houthi drones to target Red Sea shipping, and militias from Basra to Damascus to assault American positions.”

This broader regional instability is what continues to keep energy markets on edge, despite the day’s modest price dip.

Equity markets across Asia responded to the Oil Edges volatility and rising geopolitical tension with mixed results. Markets in Hong Kong, Sydney, Singapore, Mumbai, Wellington, Bangkok, Manila, and Jakarta ended the day lower. However, Tokyo, Seoul, and Taipei posted slight gains, while London opened higher.

European markets were more resilient. London, Paris, and Frankfurt all gained despite a report showing UK inflation slowed less than expected in May.

On Wall Street, sentiment was dampened by weaker-than-expected U.S. retail sales figures for May, largely due to declining auto sales. Factory output also fell, adding to concerns about the strength of the U.S. economy.

However, the weaker economic data provided a silver lining: it increased speculation that the Federal Reserve may cut interest rates later this year. According to Bloomberg News, traders are now pricing in two rate cuts by year-end.

Investors are closely watching the Federal Reserve’s policy meeting, which concludes later today. While no immediate rate change is expected, the Fed will release updated projections for interest rates and economic growth—figures that are likely to reflect the ongoing tariff disputes and escalating tensions in the Middle East.

KPMG senior economist Benjamin Shoesmith noted, “The Fed would no doubt be cutting again by now if not for the uncertainty regarding tariffs and a recent escalation of tensions in the Middle East.”

With no immediate resolution in sight for the Iran-Israel conflict, and with President Trump signaling a more aggressive stance, Oil Edges markets are expected to remain volatile. While oil edges down for now, traders are bracing for more turbulence depending on military developments and policy moves.

 Source- EWN