International oil prices surged nearly 8% on Monday! Middle East conflict blocks key straits. Where will oil prices go from here?

On Sunday evening Eastern Time, U.S. crude oil prices surged by over 7%. Market participants are concerned that the war between the U.S. and Iran could spiral out of control, leading to severe supply disruptions.

As of 7 p.m. Eastern Time (8 a.m. Beijing Time Monday), U.S. crude oil prices rose more than 7.7% intraday, gaining $5.16 to reach $72.18 per barrel. The global benchmark Brent crude also increased by about 8%, up $5.91 to $78.78 per barrel.

Substantial Blockade of the Strait of Hormuz

According to CCTV, on the 1st local time, Iran officially announced that Supreme Leader Khamenei was killed in the U.S.-Israeli attack on February 28, “died in the line of duty.” High-ranking officials including the Iranian Armed Forces Chief of Staff and Defense Minister also died in the attack.

On the evening of February 28, the Iranian Islamic Revolutionary Guard Corps announced that any ships passing through the Strait of Hormuz were prohibited, after which an oil tanker attempting to pass the strait on March 1 was hit and began sinking.

In the IRGC’s announcement on the 1st, Iran claimed that three unauthorized US and UK oil tankers in the Persian Gulf and Strait of Hormuz region were targeted by missile attacks.

Since one-fifth of global maritime oil transportation passes through the Strait of Hormuz, analysts believe that a blockade of the strait could have a significant impact on the international energy market, with short-term sharp increases in oil prices expected.

However, the market’s ultimate reaction will depend on whether this war causes long-term disruption of traffic through the Strait of Hormuz, which is the most critical chokepoint in global oil trade.

On Sunday, U.S. President Trump stated that military operations would continue until all U.S. objectives are achieved. Trump previously said Iran hoped to negotiate, and he had agreed to negotiations, offering a potential de-escalation to avoid large-scale and prolonged conflict.

Speed of Strait Restoration Will Determine Oil Price Trends

Analysts led by Henri Patricot at UBS reported on Sunday:

“We believe that the speed of traffic recovery through the Strait of Hormuz and Iran’s retaliatory measures will be key factors influencing oil prices in the coming days.”

According to consultancy Rystad Energy, due to precautionary measures by shipping companies, oil tanker transportation through the strait has essentially halted.

Oil analyst Matt Smith from energy consultancy Kpler said:

“Oil tankers are beginning to gather near the Strait of Hormuz, but currently, it seems no tankers can pass through — they are clearly frightened.”

Data from Kpler indicates that by 2025, the daily throughput of the strait will exceed 14 million barrels, about one-third of global maritime crude exports. The company states that roughly three-quarters of this volume is destined for China, India, Japan, and South Korea.

Could Oil Prices Surge to $120?

Barclays analysts told clients last Saturday that, as security in the Middle East continues to deteriorate, Brent crude could rise to $100 per barrel.

UBS analysts also pointed out that the market might be anticipating significant supply disruptions, potentially pushing Brent spot prices above $120 per barrel.

Barclays analyst Amarpreet Singh told clients:

“The ultimate outcome of this situation is still unpredictable, but during this period, the oil market will have to face the worst fears. The potential impact on the oil market is beyond words.”

Andy Lipow, president of Lipow Oil Associates, said that due to the uncertain situation in Tehran, domestic unrest, and labor strikes at Iran’s oil fields and ports, Iran’s oil exports could also decline sharply. Iran’s daily oil production is about 3.3 million barrels.

(Source: Cailian Press)