Crude oil prices spiked dramatically toward $120/barrel as key Gulf producers curbed output, the vital Strait of Hormuz remained functionally closed, and the US threatened further escalation in a conflict that has severely disrupted global energy markets.
Brent crude surged as much as 28% to $118.73 a barrel—marking its most significant intraday move since April 2020—while West Texas Intermediate (WTI) leaped 31%. The closure of the Strait of Hormuz has caused storage facilities to rapidly reach capacity, prompting Kuwait and the United Arab Emirates to begin reducing output. Iraq initiated its own production shut-ins last week.
Escalating Geopolitical Tensions
The war in the Middle East shows no signs of abating following US and Israeli strikes on Iran over a week ago. The halt to shipping through Hormuz, a critical bottleneck that typically handles a fifth of the world’s oil, alongside attacks on energy infrastructure, has aggressively driven up both crude and natural gas prices.
US President Donald Trump addressed the price shock in a late-night post on Truth Social, characterizing the short-term market movements as a “very small price to pay” for peace and global security. He asserted that prices will fall rapidly “when the destruction of the Iran nuclear threat is over.” Despite US retail gasoline prices hitting their highest levels since August 2024—a significant economic headwind ahead of the midterm elections—Trump indicated early Saturday that the US is considering expanding its target list to previously unthreatened areas and groups in Iran.
In response, Iranian President Masoud Pezeshkian vowed not to back down. Simultaneously, the semi-official Fars news agency reported Sunday that Iran has named the son of the late Ayatollah Ali Khamenei as its new supreme leader, securing pledges of obedience from the Islamic Revolutionary Guard Corps. Amid the rising volatility, the US State Department has ordered the departure of US employees in Saudi Arabia, according to a New York Times report citing anonymous officials.
Supply Chain Bottlenecks and Infrastructure Threats
“The psychological level of $100 oil may just be a short-term price target on its way to higher levels as the conflict drags on,” said Andy Lipow, president of Lipow Oil Associates. “Oil production is throttled back as oil storage fills up because tankers are unable to load.”
The scale of the disruption is staggering. Middle East oil production shut-ins could exceed 4 million barrels a day by the end of next week as storage fills and logistical bottlenecks persist, according to a March 8 note from JPMorgan Chase & Co. analysts, including Natasha Kaneva. The region typically accounts for roughly one-third of global output.
Regional energy infrastructure continues to face direct threats. Over the weekend, Saudi Arabia intercepted and destroyed drones targeting the 1-million-barrel-a-day Shaybah oil field. The kingdom was already forced to halt operations at its largest refinery, Ras Tanura, last week, and is currently attempting to divert export barrels to its Red Sea ports.
Global Ripple Effects and Bullish Indicators
The surge in energy costs is triggering widespread market reactions:
- China: The government has instructed its top refiners to suspend exports of diesel and gasoline to secure domestic supply.
- South Korea: Officials are reviewing the introduction of an oil price cap for the first time in 30 years.
Market indicators reflect acute near-term supply anxiety. Brent’s prompt spread—the difference between its two nearest contracts—widened to over $9.63 a barrel in backwardation. This highly bullish pattern is a sharp contrast to a gap of just 62 cents a month ago.
“Right now, the biggest fear is still disruption to flows through Hormuz,” Haris Khurshid, chief investment officer at Karobaar Capital LP in Chicago, told Bloomberg News. “Production shut-ins matter, but the market really worries about barrels not being able to move.”