Oil Surges 14% on Mideast War
Global markets are being whipsawed by the U.S.-Iran war, with oil prices surging over 14% on fears of supply disruptions. While U.S. stocks have partially recovered after initial drops, analysts note a “weird” calm as some investors bet on a short conflict, despite the risk of inflationary shocks.
The current surge in oil prices is centered on the Strait of Hormuz, a narrow waterway between Oman and Iran. Roughly 20% of the world's total oil consumption, about 20.8 million barrels per day, passes through this chokepoint, making any disruption a significant threat to global supply. With shipping companies halting transit due to the conflict, the strait is now under a de facto closure. This isn't the first time a Middle East conflict has roiled energy markets. The 1973 oil embargo caused prices to jump by 300%. Following the 1979 Iranian Revolution, prices also spiked dramatically on fears of instability and speculative hoarding. In contrast, during the 1991 Gulf War, prices crashed after an initial surge once it became clear that Saudi Arabian oil fields were secure. In response to the current crisis, the OPEC+ consortium has agreed to a modest production increase of 206,000 barrels per day, scheduled to begin in April. While the group holds an estimated 3.5 million barrels per day of spare capacity, this buffer is largely held by Saudi Arabia and the UAE, whose main export route is the now-disrupted Strait of Hormuz. To cushion against such shocks, the United States maintains a Strategic Petroleum Reserve, which held approximately 415 million barrels in late February 2026. This is significantly lower than its peak, following substantial releases in recent years to manage high gasoline prices. Analysts are now forecasting that a prolonged closure of the strait could push oil prices well above $100 a barrel, with some scenarios projecting prices in the $110 to $130 range. The disruption impacts more than just crude oil, as about 18% of global liquefied natural gas (LNG) supply also transits the waterway. The economic fallout extends beyond gas pumps. Sustained high oil prices could fuel broader inflation, impacting everything from food to manufacturing as transportation costs rise. This presents a complex challenge for central banks, which may have to choose between fighting inflation and supporting economic growth.
