Context & Background:
Escalating conflict in the Middle East is reverberating across global energy markets, pushing crude oil prices sharply higher. Brent has surged above $80 per barrel, marking its strongest move since 2022, as tensions involving Iran, Israel, and the United States intensify. The rally has been amplified by reports of disrupted refinery operations in Saudi Arabia following drone attacks, alongside growing fears of supply instability. Unlike other risk assets such as Bitcoin, which declined over the weekend, oil has reacted in a more direct and sustained manner, with futures rising between 5% and 10%.
A central concern is the Strait of Hormuz, through which roughly one-fifth of global seaborne oil flows. Shipping activity in the corridor has slowed significantly amid rising security risks, and even partial disruption could remove millions of barrels per day from global supply. With Iran accounting for around 3% of global production and positioned strategically along key export routes to Asia, any sustained blockade could trigger a broader energy shock. Looking ahead, prolonged supply disruptions could fuel inflationary pressures and influence central bank policy decisions. Forecast revisions from major financial institutions suggest expectations for higher oil prices in the coming quarter, reinforcing the risk of renewed global energy volatility.
Energy Markets React to Strait of Hormuz Disruption Risks
The military escalation in the Middle East is also impacting energy markets. Oil has surpassed $80 a barrel, with Brent crude hitting levels not seen in months. The geopolitical crisis involving Iran, Israel, and the United States is rapidly turning into a full-blown energy shock, with direct consequences for the international economy.
The news, also reported by Bloomberg, of the suspension of operations at a major Saudi Arabian refinery following a nearby drone strike has also contributed to the price rise. Crude oil prices are expected to see the highest increase since 2022.
Compared to other assets—such as Bitcoin, which fell by around 4% over the weekend—oil’s reaction has been more linear. Perpetual futures are already showing gains of between 5% and 10%, but with the paralysis of the Strait of Hormuz, the situation could soon worsen. According to Polymarket, a total or partial closure of the Strait of Hormuz is estimated at a 61% probability.
It is a crucial junction, as approximately one-fifth of the world’s seaborne oil flows pass through Hormuz. Iran accounts for approximately 3% of global oil production. The country also occupies one of the world’s most strategic locations for energy supplies, as Persian Gulf oil must pass through the Strait of Hormuz to reach key markets such as China, India, and Japan.
Brent Rally Signals Potential Supply Shock
Oil prices had already shown signs of potential increases since the beginning of the year, with increases of approximately 16%. A surge toward a price between $80 and $100 could have significant inflationary effects, impacting both production prices and consumer prices. Persistent increases, from this perspective, would also have significant consequences for monetary policy decisions and inflation expectations.
A key factor in triggering a full-blown energy crisis is traffic in the Strait of Hormuz, which has been virtually paralyzed since yesterday. Hundreds of ships have decided to stop on their own. Since the conflict has spread beyond Iran, the first retaliatory acts against oil tankers have also begun.
Yesterday alone, three ships were damaged, and one death was reported off the coast of the United Arab Emirates and Oman. Across the Middle East, a significant number of shipowners have already decided to suspend their services.
Many observers believe a surge in energy prices is highly likely, just as occurred in 2022. The recent increase in oil prices is also due to the recent decisions of OPEC+, whose members met yesterday. The group decided to increase oil quotas by 206,000 barrels per day starting April 1st, a far smaller amount than expected. If the Strait of Hormuz were to experience a complete standstill, the market could lose around $10 million a day.
Inflation and Policy Risks Rise with Higher Oil Prices
In the past few hours, Bahrain announced that one of its ships had caught fire in one of its ports, while four other vessels were targeted on Sunday. Insurance companies are reportedly trying to figure out how to assess transit risk during these extremely sensitive times.
In any case, Bloomberg reports that Morgan Stanley has raised its Brent crude forecast for the second quarter, from $62.50 to $80 a barrel.