KEY POINTS
- Oil prices surpassed $105 per barrel amid escalating conflict in Iran and disruptions in the Strait of Hormuz.
- Emergency reserves and US production initiatives aim to stabilize supply, but risks of prolonged conflict remain.
- Rising oil costs threaten global fuel prices, food security, and broader economic stability.
Oil prices rose sharply on Monday as the conflict between the United States, Israel, and Iran entered its third week, intensifying concerns over global supply.
Brent crude, the international benchmark, increased 1.5% to $104 per barrel, while West Texas Intermediate (WTI), the US benchmark, traded just below $100 per barrel.
Both benchmarks have surged more than 40%, reaching levels not seen since 2022, following US and Israeli attacks on Iran that led Tehran to effectively block the passage of most oil tankers through the Strait of Hormuz, a critical chokepoint through which about 20% of the world’s supply flows.
US strikes on Kharg Island, where the majority of Iran’s oil is shipped, have heightened fears that the conflict could further disrupt global oil flows.
Rising Geopolitical Risks
Although the recent strikes appeared to target military infrastructure rather than facilities, the potential risk to energy supply remains significant. Shortly after the Kharg Island attacks, debris from an intercepted Iranian drone fell on a key terminal in the United Arab Emirates, temporarily halting operations and underscoring the vulnerability of Middle East oil infrastructure.
President Donald Trump warned that the US might consider targeting Iranian oil infrastructure if Tehran continued interfering with ships passing through the Strait of Hormuz. Iran has also laid mines in the strait and threatened attacks on any US-linked oil and gas installations.
Market analysts, including Jim Reid of Deutsche Bank, said investors are increasingly pricing in the possibility of a prolonged conflict, reflecting the heightened uncertainty in global energy markets.
In response to rising prices and supply fears, the IEA, announced that emergency oil reserves would soon begin flowing into global markets.
Member countries have agreed to release 400 million barrels of oil, with stocks from Asia and Oceania available immediately, while reserves from the Americas and Europe are set to be released at the end of March. Meanwhile, the Trump administration has taken steps to boost domestic production.
A new BP offshore project in the Gulf of Mexico received approval, marking the company’s first new project since the 2010 Deepwater Horizon disaster. Energy Secretary Chris Wright also directed Sable Offshore Corp. to restart offshore rigs and pipelines off the coast of Southern California.
The surge in oil prices has pushed US gas prices to an average of $3.72 per gallon, threatening one of Trump’s key political points regarding low fuel costs.
