Crude oil prices climbed sharply on Tuesday as twin military confrontations between the United States and Iran rattled energy markets and revived supply-disruption fears.
Brent crude gained 1.35% to $68.68 per barrel. West Texas Intermediate rose 1.93% to $65.14, extending gains from a session that saw WTI trade as high as $65.52.
F-35 shoots down Shahed drone near USS Lincoln
A Navy F-35C fighter jet shot down an Iranian Shahed-139 drone on Monday after it flew toward the aircraft carrier USS Abraham Lincoln in the Arabian Sea, roughly 500 miles from Iran's southern coast.
U.S. Central Command said the drone "unnecessarily maneuvered toward the ship" and kept closing despite de-escalation efforts. The jet destroyed it in what CENTCOM called a self-defense action. No personnel were hurt and no equipment was damaged.
The Lincoln had arrived in the region just days earlier after redeploying from the South China Sea.
IRGC gunboats try to board US tanker
Hours later, three pairs of armed IRGC fast boats confronted the Stena Imperative, a U.S. flagged oil tanker transiting the Strait of Hormuz about 30 kilometers north of Oman. The boats carried .50-caliber guns and ordered the tanker to cut its engines and prepare for boarding, according to maritime security firm Vanguard Tech.
The vessel sped up instead, and the guided-missile destroyer USS McFaul moved in to escort it through the strait with Air Force overwatch. CENTCOM spokesman Capt. Tim Hawkins warned that "continued Iranian harassment and threats in international waters and airspace will not be tolerated."
Iran's Fars news agency offered a different account, claiming the tanker briefly entered Iranian waters without permits and left after a warning.
The Stena Imperative is no ordinary commercial vessel. She belongs to the Maritime Administration's Tanker Security Program, a fleet of ten U.S. flagged product tankers earmarked for Department of Defense fuel supply during contingencies.
Strait of Hormuz risk back in focus
Roughly a fifth of the world's oil supply passes through the Strait of Hormuz, making any confrontation there a direct threat to global energy flows. The back-to-back incidents pushed traders to price in a higher geopolitical risk premium after WTI plunged over 5% last week when earlier U.S.-Iran diplomatic signals briefly calmed the market.
President Donald Trump told reporters at the White House on Tuesday that Washington was negotiating with Iran "right now" and that talks would continue Friday. But the dual military episodes undercut optimism that diplomacy alone can defuse the standoff.
India oil deal adds another layer
Separately, Trump cut tariffs on Indian goods from 25% to 18% on Sunday after Prime Minister Narendra Modi pledged to halt purchases of Russian crude and buy more U.S. energy. India's Russian oil imports have already slid to about 1.2 million barrels per day in January from higher levels last year, with traders projecting further declines toward 800,000 bpd by March.
The deal could tighten the market for Middle Eastern barrels if Indian refiners shift sourcing, though analysts note that replacing roughly 1 million bpd of discounted Russian crude with pricier alternatives will test New Delhi's resolve.
Inventory surprise supports bulls
American Petroleum Institute data released late Tuesday showed U.S. crude inventories fell by 11.1 million barrels in the week ended January 30, dwarfing forecasts for a 700,000-barrel build. If confirmed by the Energy Information Administration's official report on Wednesday, it would mark the steepest weekly draw since August 2023.
The combination of fresh geopolitical risk and tighter physical supply left Brent trading in a $66.99 to $69.75 range for the day, with the contract settling near the upper end.
What traders are watching
Friday's U.S. Iran talks top the calendar. A breakthrough on nuclear negotiations or a mutual de-escalation pact could erase the risk premium overnight. Failure, or another provocation, could push Brent above $70 for the first time in weeks.
OPEC+ meets March 1 to decide whether to resume output increases after a first-quarter production pause. EIA inventory data on Wednesday will either validate or challenge the API's massive draw.