US-Iran Conflict Shakes Global Markets

Global markets are back into geopolitical mode after US and Israeli strikes on Iran over the weekend broadened into a more regional conflict that is now touching Israel, U.S. bases and parts of the Gulf. The strikes occurred despite a third round of negotiations in Geneva last Thursday with indications from both sides that talks were progressing. Iran’s response was quick, with missile attacks targeting neighbouring states hosting U.S. military bases, while Israel expanded operations to include Iran-backed Hezbollah in Lebanon. The reported assassination of Supreme Leader Ali Khamenei has crossed the red line and pushed the region into its most precarious moment in decades, and markets are reacting sharply.

Geopolitical Escalation Reignites Oil Market Volatility

Global oil markets have re-entered crisis mode. What began as targeted strikes under “Operation Epic Fury” has rapidly evolved into a broader confrontation with immediate consequences for global energy flows. Brent crude surged sharply, briefly testing the $85.10 per barrel on Tuesday, because investors begin to price in that the conflict could become prolonged and regionally entrenched. If it does, oil above $100 per barrel may prove to be only an intermediate step, with $120 increasingly within reach.

Source: TradingView. Brent Crude Oil Daily Price Chart as of 03 March 2026.

Strait of Hormuz Disruption Threatens Global Oil Supply

At the heart of this crisis lies the Strait of Hormuz, the most critical chokepoint in the global oil system. Roughly a fifth of global oil consumption and close to a third of seaborne crude trade pass through this narrow waterway each day. While there has been no formal naval blockade, the Strait is effectively experiencing a de facto closure. Tanker traffic has fallen sharply, vessels have diverted or anchored offshore, and major shipping companies such as Hapag-Lloyd and CMA CGM have suspended transits. War-risk insurance premiums have surged, and in some cases, coverage has been withdrawn entirely. In energy markets if ships cannot transit safely or economically, supply is effectively removed from the market.

If a full-scale regional conflict results in sustained disruption through Hormuz Brent crude could climb to $120 per barrel. Gulf producers can maintain output for only a limited period if exports are blocked, as storage capacity eventually becomes saturated. Once storage fills, production must be shut in. Unlike a demand-driven rally, a supply shock of this magnitude forces a rapid repricing of geopolitical risk across the oil complex.

Limited Pipeline Capacity Amplifies Supply Shock

Pipeline infrastructure in the region can absorb only part of the displaced volumes. Even under optimistic assumptions, millions of barrels per day could remain stranded if tanker flows are not restored. That represents a structural tightening of global supply rather than a temporary inconvenience. Soaring freight rates and insurance costs add a further premium to every barrel. Oil does not need to disappear entirely to rise sharply in price; it only needs to become significantly harder and more expensive to deliver.

Why Oil Prices Haven’t Already Surged Above $100

Despite the severity of the headlines, Brent remains below triple digits for now. Global inventories were relatively comfortable before the escalation, with China in particular holding substantial stockpiles. Strategic petroleum reserves provide an additional, though temporary, cushion. Most importantly, markets are still assigning a meaningful probability to containment. Energy traders are weighing the possibility that the confrontation could de-escalate before physical shortages become acute. Spare production capacity is less relevant than the ability to move barrels to market. If tanker traffic remains constrained only briefly, inventories can smooth the shock. If disruption persists for weeks or months, oil prices can increase significantly.

Prolonged Conflict Could Trigger Significantly Higher Oil Price

If the conflict broadens further or extend in duration, Brent prices could spike to $120. Continued attacks on tankers or energy infrastructure, deeper spillover into Gulf producers such as Saudi Arabia, the United Arab Emirates, Iraq, or Qatar, and prolonged insurance withdrawal would transform a temporary risk premium into a structural supply impairment. In that environment, incremental production increases by OPEC+ would have limited practical effect, as much of the region’s output depends on safe passage through Hormuz. Spare capacity on paper cannot offset barrels that are physically unable to reach global markets.

Natural Gas and Inflation Risks Rise Alongside Oil

The Strait of Hormuz is also critical for liquefied natural gas shipments, particularly from Qatar. Disruptions to LNG flows would tighten global gas markets, especially in Europe, where the timing is sensitive with storage levels roughly 30% full heading into the refill season. A jump of roughly 50% in benchmark futures would be a scenario in which energy prices could boost inflation in the second half because higher oil and gas prices would feed directly into transportation, electricity, and food costs. A renewed energy-driven inflation impulse could increase volatility across bond and equity markets.

Duration of the Conflict Will Determine the Direction of Oil Prices

Iran does not need to impose a formal blockade to disrupt flows. Limited but targeted attacks, combined with credible threats, have already been sufficient to deter commercial shipping. By raising the cost and risk of transit, supply can be effectively constrained without an official closure. If flows normalize quickly, prices could retrace. If disruption proves persistent, the upside expands considerably.

Ultimately, duration will determine direction. A brief interruption would result in a temporary spike. A prolonged or wider conflict, however, would force markets to embed a sustained geopolitical premium into prices. In such a scenario, Brent at $120 would no longer represent an extreme outcome, but a central pricing scenario. Until tanker traffic through the Strait of Hormuz is reliably restored, the balance of risk in oil markets remains skewed to the upside.

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