Oil hits near 2-year high; $100 barrel in sight amid Hormuz blockade

Oil prices continued to surge on Friday, with the market increasingly eyeing the $100 per barrel mark amid ongoing geopolitical tensions.

Prices hit a nearly two year high on Friday. 

Crude oil prices had eased slightly earlier on Friday following Washington's decision to issue waivers for Russian oil purchases to help alleviate supply constraints. 

Prices at the time of writing were more than 3% higher for the West Texas Intermediate benchmark and 2% up for Brent. 

Both benchmarks are still on track for their sharpest weekly gain since Russia's full-scale invasion of Ukraine in February 2022.

Geopolitical conflict ignites oil surge

This week has seen a significant jump in crude oil futures, with WTI climbing 20% and Brent crude futures surging more than 17%. 

The WTI crude benchmark last traded at $84 a barrel, up 3.7%, while Brent was nearly 2% higher at $87 a barrel.

WTI had hit $84.88 earlier in the day, its highest level since April 2024, while Brent also reached a near two-year high of $87.64 per barrel. 

The aggressive surge in oil prices began after the US and Israel initiated strikes on Iran on Saturday. 

In response, Iran blocked the movement of tankers through the Strait of Hormuz, a critical chokepoint that handles approximately one-fifth of the global daily oil supply. 

This conflict has since escalated, spreading to other major energy-producing regions in the Middle East, leading to interruptions in oil production and the closure of refineries and liquefied natural gas facilities.

“Even in the event of a prolonged conflict, there would probably be no shortage of oil and gas, but the reduced supply would certainly cause the price of oil to rise,” Commerzbank AG’s Chief Economist Jörg Krämer said. 

US actions to alleviate supply constraints

The US Treasury Department's anticipated announcement of measures to counteract increasing energy prices, driven by the Iran conflict, initially caused oil prices to drop by over 1% on Friday. 

However, those losses narrowed after Bloomberg News reported that the Trump administration had, for the time being, decided against the Treasury trading oil futures.

To alleviate supply bottlenecks that have forced Asian refineries to cut back on fuel processing, the US Treasury on Thursday issued waivers.

These waivers allow companies to purchase sanctioned Russian oil that is currently held in tankers.

The first recipients of these waivers were Indian refiners.

In response, they have begun acquiring millions of barrels of Russian crude oil, reversing their previous stance of halting such purchases. 

Ship-tracking data from Kpler indicates that approximately 30 million barrels of Russian oil are available and loaded on vessels in the Indian Ocean, Arabian Sea, and Singapore Strait, with some volume held in floating storage.

Strategic chokepoints and $100 barrel forecast

“According to a VAR model we have estimated, a 20% reduction in supply – with all other conditions remaining unchanged – would cause the price of oil to rise to USD 100,” Krämer added. 

“This action by the US is part of the administration's plan to try to cap oil prices,” Warren Patterson, head of commodities strategy at ING Group, said in a note. 

The US is currently evaluating the possibility of utilising the strategic petroleum reserve (SPR), which holds 415 million barrels.

Should the US government opt to reduce the SPR to 2023 levels, an estimated 68 million barrels could be released.

The Strait of Hormuz is a critical passage, typically facilitating the daily transit of 16 million barrels of Gulf crude oil, excluding Iranian output. 

Given that storage reserves are minimal—measured in days, not months—and alternative export capabilities cover only a small portion of the total volume, the key concern for most Gulf oil producers is the timing of inevitable production cuts, with Iran expected to be the first to cease production, according to Rystad Energy.

“The effects are already spilling into multiple sectors, from data centers to consumers who will ultimately feel it at the gas pump,” Aditya Saraswat, head of MENA research at Rystad Energy said in an emailed commentary.

“If the conflict drags on, triple-digit oil prices become a very real possibility.”