Oil jolts as Gulf tensions intensify

Oil prices surged by as much as 13 per cent during intraday trading after disruptions to shipping through the Strait of Hormuz heightened fears of supply constraints, following retaliatory strikes by Iran in response to coordinated military action by Israel and the United States. Brent crude and West Texas Intermediate both climbed sharply before trimming gains, reflecting mounting anxiety across energy markets over the stability of one of the world’s most critical maritime chokepoints.

The spike came as reports emerged of attacks targeting commercial vessels near the narrow waterway that links the Gulf to global markets. The Strait of Hormuz handles roughly a fifth of the world’s oil consumption, according to estimates from energy agencies, making it a focal point for traders whenever geopolitical risks flare. Any sustained interruption threatens to tighten supplies at a time when global inventories remain sensitive to production policy decisions by OPEC+ and demand uncertainties across major economies.

Tehran’s response followed air strikes attributed to Israel and the United States on strategic assets linked to Iran’s regional network. Iranian officials warned that foreign military actions would carry consequences for maritime security, and shipping advisories were swiftly updated as insurers reassessed risk premiums for vessels transiting the area. Tanker tracking data indicated several ships altered course or delayed passage, prompting immediate concern in futures markets.

Energy analysts said the 13 per cent surge represented one of the sharpest single-session moves since the early phase of Russia’s invasion of Ukraine in 2022. Although prices later eased from their peak, volatility indicators jumped, underlining how quickly geopolitical developments can translate into market turbulence. Traders cited thin liquidity and algorithmic trading as amplifying the upward move once key technical levels were breached.

Saudi Arabia, the United Arab Emirates and Kuwait export the bulk of their crude through the strait, while Qatar relies on the route for liquefied natural gas shipments. Any prolonged disruption could reverberate beyond oil, affecting gas markets and shipping costs worldwide. Energy consultancies noted that even temporary interference tends to lift freight rates and insurance costs, adding to the delivered price of crude for refiners in Asia and Europe.

Washington said it was monitoring the situation closely, with the US Fifth Fleet headquartered in Bahrain maintaining a naval presence in the region. Officials reiterated commitments to freedom of navigation, while urging restraint from all parties. Israel, which has long viewed Iran’s military capabilities as a strategic threat, has not publicly detailed the scope of its latest operations but signalled it would act to protect its security interests.

Market participants are weighing the likelihood of escalation against the prospect of diplomatic backchannels aimed at containing the crisis. Previous episodes of tension in the Gulf, including tanker seizures and drone attacks on energy infrastructure, have produced price spikes that faded once immediate threats subsided. However, analysts caution that miscalculation in the current climate could lead to more sustained disruption.

Oil demand forecasts had already been subject to debate amid mixed economic signals from China, Europe and the United States. While global consumption remains robust by historical standards, growth has moderated compared with the post-pandemic rebound. OPEC+ has been managing output through coordinated production curbs, led by Saudi Arabia and Russia, in an effort to support prices. The latest geopolitical shock adds a new layer of complexity to supply calculations.

Strategists at several investment banks suggested that if shipping flows through Hormuz were curtailed for more than a few days, prices could test significantly higher thresholds, particularly if spare capacity proves insufficient to offset lost barrels. Saudi Arabia retains some ability to reroute exports through the East-West pipeline to the Red Sea, though volumes are limited compared with total Gulf output. The United Arab Emirates has a pipeline from Abu Dhabi to Fujairah that bypasses the strait, yet it does not fully cover export needs.

Insurance underwriters in London and the Gulf have reportedly expanded designated high-risk zones, raising war-risk premiums for tankers. Such adjustments can ripple through global trade, as charterers pass on higher costs. Shipping executives say contingency planning has intensified, with some operators considering alternative scheduling or temporary pauses.