On Monday, oil prices surged by 7 percent, reaching their highest levels in months, following an escalation of conflict between Iran and Israel in the Middle East. The intensified conflict occassioned significant disruptions to shipments from this critical oil-producing region with ships facing attacks at the Strait of Hormuz, which is responsible for carrying about 20% of the world’s oil and gas.
As a result, Brent crude futures soared to USD 82.37 per barrel, the highest since January 2025, during the first trading session after the United States and Israel launched strikes on Iran and reportedly killed its Supreme Leader, Ali Khamenei, on Saturday. Furthermore, Brent futures had moderated slightly to USD 78.24 per barrel, still reflecting a substantial increase of USD 5.37. Similarly, U.S. West Texas Intermediate crude rose by USD 4.66, to USD 71.68 per barrel.
The renewed wave of violence began on Sunday when Israel conducted additional strikes on Tehran, prompting further missile barrages from Iran. This marked a significant escalation following the death of Ali Hosseini Khamenei – the Supreme Leader of Iran, plunging the Middle East and the global economy into deeper uncertainty. The attacks have also directly threatened maritime security, with missiles hitting at least three tankers off the Gulf coast and resulting in the death of one seafarer, according to shipping sources and officials. In response, Iran announced the closure of navigation through the Strait of Hormuz, a vital waterway for global oil shipments, prompting Asian governments and refiners to reassess their oil stockpiles.
Resulting Threat to Oil Supplies
Analysts have highlighted the growing risks to oil supplies. They have also noted that the shift in retaliatory actions to include attacks on oil tankers in the Strait of Hormuz has substantially raised the threat to oil supplies. Analysts expect Brent crude to trade between USD 80 and USD 90 per barrel this week amid the ongoing conflict. Their baseline outlook suggests that either a change in Iranian leadership or sufficient regime change could halt the war within one to two weeks, or alternatively, the U.S. may choose to de-escalate after achieving its objectives of setting back Iran’s missile and nuclear programs. The US President Donald Trump has pointed out that the entire operation could take upto 4 weeks.
Amid the turmoil, OPEC+ agreed to a modest increase in oil output of 206,000 barrels per day for April 2026 to preempt price increases. However, according to some analysts, nearly all OPEC+ producers are already producing at full capacity, with the exception of Saudi Arabia. They further cautioned that the utilization of any spare production capacity would be severely limited if critical waterways like the Strait of Hormuz remain inoperable. The risks to commercial shipping have escalated sharply, with data showing that more than 200 vessels, including oil and liquefied gas tankers, have dropped anchor around the strait and surrounding waters.
The International Energy Agency (IEA) is closely monitoring the situation and has been in contact with major producers in the region and IEA member governments. The agency is prepared to coordinate the release of strategic petroleum reserves from developed countries in the event of an emergency. Meanwhile, analysts noted that global visible oil inventories stand at 7.727 million barrels.
Ultimately, the trajectory of oil prices now hinges on two pivotal factors: the duration and intensity of the conflict itself, and the effectiveness of the global response mechanism, particularly the coordinated release of strategic reserves. With the Strait of Hormuz effectively closed and spare production capacity limited, the immediate outlook is one of heightened risk and persistent volatility. All eyes will remain on the Strait and on the diplomatic efforts in world capitals as they work to navigate this dangerous new phase in the Middle East.
