On Sunday, global oil markets witnessed a sharp spike as crude oil prices crossed the USD 100 per barrel mark for the first time in over 3.5 years, triggered by supply disruptions stemming from the ongoing Israel-Iran conflict and rising unrest across the Middle East, especially surrounding the global trade corridor of the Strait of Hormuz.

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Brent crude, the international benchmark, reached USD 107.97 per barrel once trading resumed on the Chicago Mercantile Exchange, marking a 16.5 per cent increase from Friday’s closing price of USD 92.69. The benchmark for US light sweet crude, West Texas Intermediate (WTI), climbed to USD 106.22 per barrel, rising 16.9 per cent from USD 90.9. So far, prices remain in a volatile state, with the possibility of fluctuating further as trading progresses.

The surge followed a recent hike, when US crude prices jumped 36 per cent, and Brent crude gained 28 per cent. The ongoing tensions, entering the second week, have involved regions producing and transporting oil and gas globally through the Persian Gulf.

A primary source of disruption is the Strait of Hormuz, a major global energy corridor. Bordered by Iran to the north, the strait serves as a vital export route for oil and gas from Qatar, Bahrain, Saudi Arabia, Kuwait, Iraq, the United Arab Emirates and Iran.

As per the independent research firm Rystad Energy, approximately 15 million barrels of crude oil, accounting for nearly 20 per cent of global supply, are transported through the strait each day. However, intensifying security concerns involving Iran have halted tanker movements through the route. Due to the export route blockage, Iraq, Kuwait and the UAE reportedly reduced production. Compounding supply concerns, multiple oil and gas facilities have come under geopolitical tussle related to the Israel-Iran conflict. 

The last time US crude futures traded above USD 100 per barrel was on June 30, 2022, when prices reached USD 105.76. Brent crude previously crossed the threshold on July 29, 2022, touching USD 104 per barrel.

Rising crude prices are already translating into higher fuel costs in the United States. According to the AAA motor club, the average price of regular gasoline climbed to USD 3.45 per gallon on Sunday, approximately 47 cents higher than a week earlier. Diesel prices rose even more sharply, reaching around USD 4.6 per gallon, rising around 83 cents over the same period. 

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Despite the recent surge, US Energy Secretary Chris Wright was optimistic about fuel prices stabilising shortly. According to him, US gasoline prices would fall below USD 3 per gallon “before too long.” He added, “Look, you never know exactly the time frame of this, but, in the worst case” it may take “weeks”, for it is not likely to extend for "months".  

Nonetheless, analysts have warned that crude oil prices remaining above USD 100 per barrel for a prolonged period of time could considerably strain the global economy. 

Iran currently exports around 1.6 million barrels of crude oil per day, most of which is shipped to China. Any disruption to these supplies could force China to source oil elsewhere, potentially pushing global energy prices even higher.

Liquefied natural gas (LNG) prices have also surged during the conflict, though less dramatically than crude oil. Late Sunday, LNG traded at around USD 3.33 per 1,000 cubic feet, rising 4.6 per cent from Friday’s close of USD 3.19, after an 11 per cent increase the previous week.

The escalating geopolitical tensions have also rattled financial markets. US stock index futures fell late Sunday, signalling a weaker start for Wall Street on Monday. Futures for the S&P 500 declined 1.6 per cent, while Dow futures dropped 1.8 per cent and Nasdaq futures slipped 1.5 per cent.

In the previous trading session on Friday, the S&P 500 fell 1.3 per cent, while the Dow Jones Industrial Average plunged by as much as 945 points before closing with a loss of roughly 450 points. The Nasdaq composite also dropped 1.6 per cent, reflecting growing investor concerns over the broader economic impact of surging energy prices.

Mohammad Bagher Qalibaf, the speaker of Iran’s parliament, warned that the impact of the Israel-Iran geopolitical tensions on the oil industry could intensify further. 

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