Oil prices rise after US and Iran exchange fire in Hormuz strait

Oil prices rose on Friday after the US and Iran exchanged fire in the key Strait of Hormuz waterway.

The US said it made self‑defence strikes in response to "unprovoked" Iranian attacks as US ships were heading out of the Gulf through the strait, which is south of Iran. Iran said the US had violated the ceasefire agreed in April, according to its state media.

The global Brent oil benchmark price rose almost 3% to nearly $103 (£75) a barrel at one point before falling back to around $100.

Despite the attacks, US President Donald Trump said on Friday the US-Iran ceasefire is still in place.

Iranian state media has reported that the situation "is back to normal now".

More than a fifth of the world's oil and gas usually passes through the Strait of Hormuz, which has been effectively blocked since the start of the US-Israel war with Iran.

Before the conflict began, oil was trading at around $70 a barrel.

Trump told reporters that three US destroyers were involved in the latest exchange of fire.

Several Iranian small boats had been "completely destroyed" and missiles that had targeted the US ships were "easily knocked down", he said on social media.

However, he also told ABC News that the Iran strikes were "just a love tap".

Trump said that negotiations with Iran were ongoing, and repeated Washington's demand that Tehran must never have a nuclear weapon.

"The talks are going very well, but they have to understand if it doesn't get signed, they're going to have a lot of pain", he told reporters.

"I believe they want the deal more than I do."

Iran's military initially accused the US of violating the ceasefire by targeting its ships, including an oil tanker, that were moving towards the Strait of Hormuz, according to Islamic Republic of Iran Broadcasting.

It said "aerial attacks" were also carried out along the coastline near the strait, prompting Iranian forces to respond by attacking the US military vessels, inflicting "significant damage."

The US military has denied that its ships had been hit. US Central Command also said it was not seeking to escalate the conflict.

Traders view the ceasefire as a "fragile" one, and have reacted accordingly even as the US and Iran play down tensions, said National University of Singapore economics researcher Huifeng Chang.

This week, Trump said that the war, which started on 28 February when the US and Israel attacked Iran, would be "over quickly" as Washington pushes for a framework for more detailed negotiations with Tehran.

As well as causing an oil price surge, the conflict has also pushed up prices for products such as jet fuel, which has jumped by about half.

British Airway's owner IAG said on Friday that it expected its fuel costs to hit €9bn (£7.8bn) this year, about €2bn higher than last year.

IAG said it had agreed the price it would pay for about 70% of its fuel for the rest of the year, and it currently saw "no issues with fuel availability" in its main markets.

Shares in the airline group fell by more than 5% in early trading in London.

Chris Beauchamp, chief market analyst at investing platform IG, said: "The limited recovery in its shares since April signals limited market confidence in the potential for a full recovery, at least until the conflict is fully resolved.

"But as last night's clashes show, even a start to negotiation seems a long way off."