LONDON: Oil surged by the most in four years, as the US-Israeli war against Iran plunged the global crude market into turmoil, with the effective closure of the critical Strait of Hormuz.
Brent rallied as much as 13% to above US$82 a barrel, the highest level since January 2025, before paring the bulk of its gain.
Tanker traffic through the strait, the chokepoint off Iran’s coast that handles a fifth of the world’s oil and large volumes of gas, has largely halted, with a self-imposed pause in place by shipowners and traders as the conflict spreads.
While Iranian authorities said that the key waterway remained open, they also said they had attacked three oil tankers.
President Donald Trump, meanwhile, said US forces sank nine Iranian naval ships, and that combat operations would continue until all objectives were completed.
In reaction to the widening conflict, the Organisation of the Petroleum Exporting Countries and its allies (Opec+) agreed at a pre-arranged weekend meeting to raise quotas next month by 206,000 barrels a day.
The group, which includes Iran, as well as Saudi Arabia and Russia, had been expected to resume modest hikes before the outbreak of hostilities on Saturday.
The war marks a dangerous new phase for the global oil market. The US and Israel fired missiles at targets across Iran on Saturday, while urging local people to overthrow the Islamic regime.
Tehran responded with a wave of strikes against Israel, as well as US bases and other targets in states, including Saudi Arabia, Qatar, the United Arab Emirates, Kuwait and Bahrain. Iran’s Supreme Leader, Ayatollah Ali Khamenei, was killed.
“If the tanker traffic resumes quickly, or there’s credible de-escalation or some back-room diplomacy talks, then you’ll see some fade,” said Haris Khurshid, chief investment officer at Karobaar Capital LP in Chicago. “Otherwise we probably consolidate at elevated levels.”
Crude has posted back-to-back monthly gains this year on sustained geopolitical tensions and a series of localised supply snarls.
The advance has come despite widespread expectations that the oil market faced a major surplus, following supply hikes by Opec+, as well as nations outside the group.
The jump in energy costs, if maintained, risks boosting inflationary pressures around the world.
That stands to complicate the task facing central bankers, including the US Federal Reserve, as they seek to manage the pace of price gains, while also supporting growth and employment.
“We see Brent oil trading at US$80 to US$90 a barrel in our base case over at least the coming week,” Citigroup Inc analysts, including Max Layton, said in a note before the start of trading yesterday.
“Our baseline view is that the Iranian leadership changes, or that the regime changes sufficiently as to stop the war within one-to-two weeks, or the United States decides to de-escalate having seen a change in leadership and setback Iran’s missiles and nuclear programme over the same time frame,” they added. — Bloomberg
