Oil surges toward $120 as Iran war shuts Hormuz, OPEC output falls

Global oil prices surged sharply over the weekend as the escalating conflict in the Middle East disrupted production and shipping routes, sending energy markets into turmoil and raising fears of a broader inflation shock.

Brent crude climbed as much as 29% to $119.50 per barrel, marking its biggest intraday move since April 2020.

At the time of writing, Brent crude was trading at $115.99.

West Texas Intermediate crude jumped about 26%, pushing prices above $115 per barrel.

The rally reflects mounting concerns over supply disruptions as the Strait of Hormuz — a critical global oil transit route — remains effectively closed due to the ongoing Iran war.

The surge follows more than a week of military escalation after US and Israeli strikes on Iran triggered retaliatory threats and widespread instability across the region’s energy infrastructure.

Strait of Hormuz disruption rattles energy markets

The Strait of Hormuz normally handles roughly one-fifth of the world’s oil supply, making it one of the most important chokepoints in global energy trade.

The halt in tanker traffic through the narrow waterway has severely disrupted oil shipments from major producers.

Kuwait, the fifth-largest producer in the Organization of the Petroleum Exporting Countries, announced precautionary cuts to oil production and refinery output as storage facilities filled due to blocked export routes.

The United Arab Emirates also began reducing offshore production as barrels accumulated without available shipping routes.

Iraq, the second-largest OPEC producer, has been forced to scale back output significantly.

Production from its three main southern oilfields has dropped about 70% to roughly 1.3 million barrels per day from about 4.3 million barrels per day before the war, according to industry officials.

Analysts warn that the disruption could deepen in the coming days if logistical bottlenecks persist.

Middle East production shut-ins could expand to more than 4 million barrels per day by next week as storage fills and export routes remain constrained, analysts at JPMorgan said in a note.

Global inflation concerns intensify

The rapid surge in energy prices is already reverberating through global markets.

In the United States, retail gasoline prices have jumped to their highest level since August 2024.

Rising fuel costs could complicate economic policy and present political challenges ahead of upcoming US midterm elections.

Governments across Asia and Europe have begun considering measures to limit the impact of soaring energy prices.

China has reportedly instructed major refiners to suspend exports of diesel and gasoline, while South Korea is reviewing whether to introduce an oil price cap for the first time in three decades.

Market indicators also signal tightening supply conditions.

Brent’s prompt spread — the difference between its two nearest futures contracts — widened to $8.59 per barrel in backwardation, compared with just 62 cents a month earlier.

Analysts say the market narrative has shifted quickly as the conflict drags on.

Political tensions keep markets on edge

The geopolitical situation continues to evolve as the conflict expands across the region.

More than a dozen countries have been drawn into the crisis, and US President Donald Trump has signaled the possibility of further military action.

In a social media post, Trump described the surge in oil prices as a temporary cost of the conflict.

A gain in “short term oil prices” was a “very small price to pay” for destroying Iran’s nuclear threat, Trump said, adding that prices will fall rapidly “when the destruction of the Iran nuclear threat is over.”

Meanwhile, the United States has begun evacuating diplomatic staff from parts of the Middle East due to security risks, while Saudi Arabia has intercepted drones targeting major oil infrastructure including the Shaybah oil field.

Energy Secretary Chris Wright said tanker traffic through the Strait of Hormuz could resume once the threat to shipping lanes is eliminated.

“We’re not too long away before you’ll see more regular resumption of ship traffic through the Straits of Hormuz,” Wright said in an interview with CNN. “We’re nowhere near normal traffic right now. That will take some time. But again, worst case that’s a few weeks, that’s not months.”

Despite those assurances, markets remain highly sensitive to developments in the conflict, with traders closely watching for any signs that supply disruptions could intensify further.