Oil prices settled roughly 5% higher on Monday after Iran and the United States traded demands for compensation, dimming prospects for a near-term deal to reopen the Strait of Hormuz. Brent crude futures settled up $4.17, or 4.99%, at $87.72 a barrel, while US West Texas Intermediate (WTI) crude closed up $3.95, or 5.05%, at $82.13 — the sharpest percentage gains for both benchmarks since July 29.

A Tit-for-Tat Over Compensation

The rally was triggered by a fresh war of words between Washington and Tehran. Iran said the US must lift sanctions on the country and meet several other conditions — including compensation for war damage — before it will agree to reopen the strategic waterway. President Trump responded on Truth Social, demanding Iran pay compensation of his own, saying Tehran must repay "all of the people that they have killed and gravely wounded" through roadside bombs and other conflicts. Iran's Supreme National Security Council said separately that the strait would not reopen until the US "corrects its behavior," demanding an end to what it calls Washington's war on Iran.

A Sharp Reversal From Last Week's Optimism

Monday's surge marks a sharp reversal from the prior week, when both Brent and WTI fell more than 7% on hopes that Iran and Oman were nearing a deal to reopen the strait. That optimism had been fueled partly by comments from US Treasury Secretary Scott Bessent, who told CNBC a deal allowing freedom of movement for ships through Hormuz could come soon. No such agreement has materialized, and positions in Washington and Tehran have instead hardened.

Iran's Foreign Ministry spokesman Esmail Baghaei said Monday that the US must lift its naval blockade before Tehran would agree to fully reopen the strait, stating that the necessary conditions for reopening don't exist as long as the blockade continues. Iranian Foreign Minister Abbas Araghchi reiterated that Tehran will not begin formal talks with Washington while the US remains in breach of an interim deal signed in June — a memorandum of understanding reached June 17 to open Hormuz to commercial ships, which collapsed shortly after amid fighting over which shipping routes vessels could use.

The Oman Track Continues, With Limits

Even as the broader US-Iran standoff hardens, Iran said it was nearing a final agreement with Oman to define new shipping lanes through the strait, though it stressed this would not amount to a full reopening of the waterway or resolve its core demands. The strait carried roughly a fifth of the world's oil and liquefied natural gas trade before the conflict began in late February, and has been effectively blocked since US-Israeli strikes on Iran that month, pushing up global oil prices and inflation ever since.

Other Factors Fueling the Rally

Several additional developments added to Monday's price pressure. Saudi Arabia's state-owned Saudi Aramco reported an attack on its Jazan refinery, coming just two days after the kingdom signed a defense pact with Turkey and Pakistan in response to growing regional instability tied to the US-Israeli war with Iran. The UAE's state oil company ADNOC said 15 of its vessels have been attacked while transiting Hormuz since the conflict began. Separately, Ukraine's military continued striking Russian energy infrastructure, hitting the Taneco oil refinery in Tatarstan and the ZapSibNeftekhim petrochemical plant in Russia's Tyumen region — adding a second front of supply-side pressure on global crude markets.

On the supply side, US Strategic Petroleum Reserve stocks fell by about 6.1 million barrels last week to 298.7 million barrels, the lowest level since January 1983, according to Department of Energy data — a decline that further tightened the US supply cushion just as prices were climbing.

What Analysts Are Saying

Dennis Kissler, senior vice president of trading at BOK Financial, said crude futures saw gains as the prospect of a US-Iran peace deal appeared delayed, compounded by Ukrainian strikes on Russian refineries and tankers in the Black Sea. With Iran now adding compensation to its list of demands, he noted, a quick resolution appears increasingly unlikely.

The Bigger Picture

Trump, who has said the original strikes on Iran were meant to prevent it from developing nuclear weapons and to degrade its regional threat capacity, is facing domestic pressure to end a war that has grown unpopular ahead of US midterm elections in November. For continuing coverage of oil markets and the Hormuz standoff, see CNBC's energy markets coverage.

With both sides now trading compensation demands rather than converging toward terms, traders are bracing for continued volatility until a credible path to reopening the strait re-emerges.