By: Economy Middle East

Oil prices rose more than 2 percent in early trading on Monday after Israel ordered troops to move further into Lebanon in the battle with the Iranian-backed Hezbollah militant group, despite a ceasefire announced more than six weeks ago. 

U.S. crude futures (WTI) rose $2.36, or 2.70 percent, to $89.72 a barrel, while Brent futures rose $2.1, or 2.30 percent, to $93.22 a barrel.

The stepped-up fighting, coming just after the U.S. hosted Israeli-Lebanon peace talks in Washington on Friday, dimmed expectations that the U.S. and Iran could soon announce an extension to their ceasefire agreement. Those diplomatic expectations had previously driven Brent and WTI to settle down 1.8 percent and 1.7 percent, respectively, on Friday, Reuters reported.

Geopolitical context and ceasefire negotiations

The Israel-Lebanon conflict has been the broadest spillover of the Iran war. It started on March 2 when Hezbollah began firing rockets and drones across the border into Israel to back its ally Iran. The two sides reached a ceasefire in mid-April but have continued to trade fire.

U.S. President Donald Trump said on Friday that he would soon decide on a proposed deal to extend a ceasefire with Iran announced in early April, giving negotiators more time to seek a permanent end to the conflict and find a solution to the underlying dispute over Iran’s nuclear program. Israel would be key to any such deal, and Iran has also said repeatedly that Hezbollah must be included.

Hormuz disruptions and macroeconomic factors

An Axios reporter said on X on Friday that Iran had dropped more mines in the strait earlier in the week, shortly after U.S. Defense Secretary Pete Hegseth said that attempts to lay more mines would be a violation of the ceasefire. The Strait of Hormuz is a conduit for about a fifth of global oil and gas flows, and Iran has effectively closed it since the conflict began with U.S. and Israeli strikes in February.

Concerns over supply stability ultimately outweighed lackluster economic data from China over the weekend, which showed stalling factory activity. The weak data added to concerns that the world’s second-largest economy is losing momentum, weighed down by a contraction in exports and persistent cost pressures.