Tehran said on 14 July it was alarming and wrong of Washington to blame Iran for attacks on two oil tankers near the Straits of Hormuz, Reuters reported.

Oil prices settled 2.2% higher on 13 July after the attacks on the two oil tankers.

Brent crude futures settled up $1.34, or 2.23%, at $61.31, having risen as much as 4.5% to $62.64. US West Texas Intermediate crude futures were up $1.14, or 2.23%, at $52.28 a barrel. WTI earlier rose as much as 4.5% to $53.45.

Justin Urquhart Stewart, director at Seven Investment Management in London, told New Europe on 14 June that “oil jumped just a little bit – not very much. It will jump though if this moves from just being an incident into something where the longer-term issue maybe with the Presidential Guard. There are the ones who are more extreme in their acting, hence one of the issues they think they are the ones who did the bombing in tankers.”

Washington released a video that it said showed Iran’s Revolutionary Guards were behind the attacks on July 13 near the vital oil shipping route on the Norwegian-owned Front Altair, which was set ablaze, and the Japanese-owned Kokuka Courageous. The attack took place while Japanese Prime Minister Shinzo Abe was visiting Tehran with a message from US President Donald J. Trump. Japan was a big Iranian oil importer until Trump stepped up sanctions.

Both vessels were adrift in the Gulf of Oman on 14 July, after their crews abandoned ship following the attacks that caused a spike in oil prices, according Reuters.

Urquhart Stewart noted that the Iranian government’s statement that it was “suspicious” that the attacks occurred during Japanese Prime Minister Shinzo Abe‘s visit to Iran shows that the Islamic Revolutionary Guard may operate outside of Tehran’s directives. “What you got is two parts of the (Iranian) Administration who operate separately from the rest so sometimes the right hand doesn’t know what the left hand is doing. It’s quite interesting when you see them sometimes, they should be talking together but they don’t,” Urquhart Stewart said.

The attacks near Iran and the Strait of Hormuz fuelled worries about an impact to flows from the Middle East if insurance companies begin to reduce coverage for voyages through the region. “All this is going to result in more volatility in oil and if we get to the stage of actually the Straits of Hormuz is seen to be backing up, tankers going in and out, because you see the main thing for them is insurance at Lloyds (of London). If they can’t get insurance cover, they don’t move,” Urquhart Stewart said.

Tensions in the Middle East have escalated since the US unilaterally withdrew from the 2015 Joint Comprehensive Plan of Action known commonly as the Iran nuclear deal or Iran deal, and re-imposed sanctions, notably targeting Tehran’s oil exports. Tehran, which has distanced itself from the previous attacks, has said it would not be cowed by what it called psychological warfare.

There are also concerns of a new confrontation between Iran and the US, which blamed Tehran for the incident. US Secretary of State Mike Pompeo reportedly said the US has assessed Iran was behind the attacks, and arrived at its conclusion based on intelligence, weapons used and the level of expertise needed for the attacks on the tankers in the Gulf of Oman.

Regarding the Strait of Hormuz, Urquhart Stewart said, “The oil price will go up unless we can actually see clear resolution which none of us can see at the moment.” In terms of politics and in terms of demand because the global economy is slowing, there should be a lower price. “However, the market is split and we can’t tell is it going up because there is going to be a shortage or is it going down because the economy is slowing and therefore it needs some support, I think the here price will stay high may well go a little higher,” he said.

Asked if he would rule out military action, Urquhart Stewart asked, laughing, “How many wars the man who said is not going to use US troops is going to get involved in? More likely that he wouldn’t. But he might do something with the Israelis to try to actually manage it properly. So I think there is a very good chance you could start seeing some bullets flying. But the trouble is Trump is so irrational so it’s difficult to judge. So if you can’t judge it, the answer is therefore don’t buy it, don’t sell it and stay exactly where you are,” he said.

Also supporting higher oil prices were reports that Organization of the Petroleum Exporting Countries (OPEC) members were close to agreeing on continued production cuts. Urquhart Stewart reminded that OPEC is cartel operation, saying: “It will do its best to maintain that price but I’m afraid this is going to be overtaken. The issue, of course, with OPEC is it doesn’t include countries like Russia which can have a direct impact so another issue of concern.”