-- US-Iran nuclear talks stalled again, with threats of a blockade of the Strait of Hormuz raising fresh risks to global oil supply and market stability, RBC Capital Markets said in a Sunday note.
Negotiations broke down over Washington's demand for zero uranium enrichment, reinforcing RBC's view that a deal was unlikely without concessions and increasing the odds of prolonged conflict and supply disruption.
With diplomacy faltering, the White House faces a choice between stepping back and allowing Iran greater control over the Strait or escalating militarily to counter Tehran's leverage over transit flows, the note said.
President Donald Trump's blockade warning suggests reluctance to retreat and may aim to pressure China by threatening Iranian crude shipments to its refineries, according to the analyst note.
However, China's response remains uncertain, as it has built sizable reserves and may strategically benefit from the US shifting its military focus toward the Middle East, the note added.
RBC warned that enforcing a blockade on Iran would be more complex than past actions in Venezuela, and could trigger retaliatory strikes by Tehran on regional energy infrastructure.
The note highlighted Iranian-backed militias in Iraq as an overlooked threat, citing their suspected role in recent attacks on key infrastructure in Kuwait and Saudi Arabia.
These attacks included damage to the East-West pipeline, underscoring broader regional risks beyond maritime disruption and raising concerns over the resilience of critical energy systems.
While markets are watching for Houthi escalation, RBC said sentiment could shift more sharply if Iraqi militias intensify operations following the breakdown in talks and blockade rhetoric.
The firm reiterated that conflict duration remains the key driver of oil prices, though messaging from US leadership has significantly influenced short-term market expectations.
RBC noted that White House communication has helped cap prices despite disruptions, even as physical markets tighten and traders struggle to identify near-term supply relief.
If a blockade is enforced, analysts expect a sharper alignment between physical and paper markets, potentially amplifying price moves as supply constraints become more visible.