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Oil prices ended higher on Friday as renewed US-Iran military exchanges raised concerns over supply disruptions in the Middle East, sending crude sharply higher for the week and pushing US diesel prices to a record.

Brent crude settled at $96.28 a barrel, up 76 cents, or 0.8%, while West Texas Intermediate (WTI) rose 18 cents, or 0.2%, to $91.48.

Brent gained 7.6% over the week, while WTI climbed nearly 10%, as shipping and supply routes in the region remained disrupted.

The renewed oil rally is adding to inflationary pressure worldwide, increasing borrowing costs and raising concerns that higher energy prices could weaken global economic growth.

US diesel prices have also surged. The average retail price reached a record $5.85 a gallon, according to AAA data, as the US-Iran conflict and Ukrainian attacks on Russian refineries further constrained supplies.

“All sectors of the economy are affected by diesel. This is one of the reasons why the government bond yields in the United States are so high, it’s the expectation that inflation will continue to go up,” said Claudio Galimberti, chief economist at Rystad Energy.

Diesel prices could rise further as inventories fall and agricultural states enter planting and harvesting seasons, when demand for fuel typically increases.

Hormuz traffic remains weak

Although the US government has said Middle Eastern oil flows have returned close to normal, shipping data suggests the recovery remains fragile.

Only four commodity vessels crossed the Strait of Hormuz on Thursday, compared with a 10-day average of about 15, according to preliminary shipping data.

“Oil seems to be in a phase where the conflict’s gridlock and recurring hostilities are regularly awakening a risk premium embedded in prices,” said Norbert Rucker, head of economics and next-generation research at Julius Baer.

He said there was still no clear indication that the latest escalation had significantly reduced exports from West Asia, suggesting that part of the recent price increase was driven by market sentiment and fear.

Analysts have nevertheless raised their price forecasts. Citi increased its third-quarter Brent forecast to $86 a barrel from $80, citing the slower-than-expected reopening of the Strait of Hormuz. ANZ raised its short-term forecast to $95, while warning that prices could rise further if the conflict intensifies.

Meanwhile, stronger US employment data complicated the outlook for oil demand and interest rates. The US economy added 162,000 jobs in August, easing concerns about labour-market weakness but strengthening expectations that the Federal Reserve could raise interest rates later in September.

“The strong employment figures points to an interest rate hike by the Federal Reserve and that was weighing on WTI,” said John Kilduff, partner at Again Capital.

Iraq, meanwhile, increased its August oil exports to about 2.34 million barrels per day, up from roughly 1.35 million bpd in July, according to Iraqi energy officials.