Global oil markets are witnessing one of their sharpest rallies in years as the escalating conflict involving Iran sends shockwaves through energy markets and raises fears of a prolonged supply disruption in the Middle East, the world’s most critical oil-producing region.
Brent crude and US West Texas Intermediate (WTI) have surged close to 30 per cent since the latest escalation of hostilities, pushing prices above $100 a barrel for the first time since 2022. WTI climbed to around $117.50, up nearly 29 per cent, while Brent crude rose to about $117.70, gaining almost 27 per cent as traders priced in the growing risk of supply disruptions.
The surge follows intensifying military exchanges across the region. Israel struck a major fuel storage facility near Tehran, while Iran launched a wave of drone and missile attacks targeting regional infrastructure and US interests. Reports of a drone strike damaging a desalination plant in Bahrain, missile attacks on Israel and a deadly Iranian counterattack on US forces in Saudi Arabia have heightened concerns that the conflict could spread across the Gulf.
Energy analysts say the sharp rally reflects mounting anxiety over the security of energy flows from the Arabian Gulf, which accounts for roughly one-third of the world’s seaborne crude exports. The region is home to several of the world’s largest oil producers, including Saudi Arabia, the UAE, Iraq and Kuwait.
A particular concern for markets is the Strait of Hormuz — the narrow maritime corridor between Iran and Oman through which about 20 per cent of the world’s oil supply, or roughly 20 million barrels per day, passes. Even temporary disruptions to tanker traffic through the strait could trigger severe supply shortages and send prices sharply higher.
“If the Strait of Hormuz were closed or significantly disrupted, oil prices could easily spike well above $150 per barrel,” said Jorge León, senior vice-president at energy consultancy Rystad Energy. “The market is already pricing in a substantial geopolitical risk premium.”
Analysts at Goldman Sachs also warn that the conflict could push oil significantly higher if the crisis drags on. In a recent research note, the bank said a prolonged disruption to Gulf exports could lift Brent crude toward $130 per barrel, particularly if Iranian production or shipping routes were severely impacted.
The International Energy Agency estimates that global oil demand is currently running at more than 103 million barrels per day, leaving relatively limited spare production capacity to cushion a major supply shock.
Opec+, led by Saudi Arabia and Russia, technically holds spare capacity of several million barrels per day, but bringing additional supply to market quickly could prove difficult if transport routes through the Gulf are compromised.
“Markets are reacting not only to current disruptions but also to the risk that this conflict could escalate further and last longer than expected,” said Vandana Hari, founder of Singapore-based energy consultancy Vanda Insights. “If the war spreads or shipping through Hormuz is threatened, the upside risk for oil prices becomes extremely significant.”
The rally is already rippling through global markets. Higher crude prices are pushing up fuel and transportation costs, raising fresh concerns about inflation just as many major economies were beginning to stabilise after years of elevated price pressures.
For energy-exporting nations in the Gulf, however, the surge could deliver a temporary windfall. Countries such as the UAE and Saudi Arabia benefit from higher oil revenues, though prolonged instability in the region could also weigh on investment, tourism and shipping.
Energy traders are now closely watching whether tanker traffic through the Strait of Hormuz remains uninterrupted in the coming days. Even limited attacks on shipping lanes or oil infrastructure could intensify the rally.
Some analysts warn that if the conflict turns into a drawn-out regional war involving major powers, oil could enter a prolonged period of extreme volatility. Historical precedents such as the 1973 Arab oil embargo and the 1990 Gulf War show that geopolitical shocks in the Middle East can rapidly transform global energy markets.
“With tensions this high, the oil market is likely to remain extremely sensitive to every military development,” said analysts at consultancy Wood Mackenzie. “A prolonged conflict could keep crude prices elevated well above $100 per barrel for an extended period.”
