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

Cailian Press, March 2 (Editor Liu Rui) — On Sunday evening Eastern Time, U.S. crude oil prices surged by over 7%. Market participants are worried 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.

Strait of Hormuz Substantially Blocked

According to CCTV, on the 1st local time, Iran officially announced that Supreme Leader Khamenei was killed in the U.S.-Israel 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 through the strait on March 1 was hit and began sinking.

In the IRGC’s announcement No. 8 issued on the evening of the 1st, Iran claimed that three illegal US-UK oil tankers in the Persian Gulf and Strait of Hormuz region were attacked by missiles.

Since one-fifth of global maritime oil transportation passes through the Strait of Hormuz, some analysts believe that a blockade of the Strait could have a huge 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 local time, U.S. President Trump stated that military actions would continue until all U.S. objectives are achieved. Trump previously said Iran hoped to negotiate, and he had agreed to negotiations, offering the possibility of easing the situation and avoiding large-scale, prolonged conflict.

Speed of Strait Restoration Will Determine Oil Price Trends

A team of 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 retaliation level will be key factors in the oil price trend over the coming days.”

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

Oil analyst Matt Smith from Kpler said:

“Oil tankers have begun gathering 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, accounting for about one-third of global maritime crude oil exports. The company states that roughly three-quarters of this volume flows to China, India, Japan, and South Korea.

Could Oil Prices Surge to $120?

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

UBS analysts also indicated 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 simply beyond words.”

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