Oil Surges to 2-Year High on War Escalation

The recent surge in oil prices comes as the Strait of Hormuz, a critical chokepoint for global energy supplies, has seen a near-total halt in tanker traffic. This waterway normally handles about 20% of the world's oil consumption and a significant portion of global liquefied natural gas (LNG). The disruption is forcing a re-evaluation of global energy security, with some analysts predicting oil could exceed $100 a barrel if flows are not quickly restored. Underlying the market's anxiety are reports from U.S. officials that Russia is providing targeting intelligence to Iran for attacks on American forces in the Middle East. This includes the locations of U.S. warships and aircraft, representing a significant new dimension in the conflict and marking the first indication of a major U.S. adversary's indirect participation. This intelligence sharing is seen as a practical way for Moscow to support Tehran, given Russia's own military hardware constraints due to the war in Ukraine. The conflict has already seen a series of escalations, including joint U.S.-Israeli air attacks on Iranian military and government sites beginning on February 28, 2026. In retaliation, Iran has launched hundreds of ballistic missiles and drones at targets in Israel and at U.S. military bases in several Gulf states, including Qatar, Bahrain, and the United Arab Emirates. This is not the first time tensions in the region have led to conflict. A "Twelve-Day War" between Israel and Iran occurred in June 2025, which also involved a U.S. airstrike on Iran's nuclear facilities. The current war, however, began with joint U.S.-Israeli strikes aimed at destroying Iran's missile program and has included the assassination of Iran's Supreme Leader, Ali Khamenei. The market's reaction reflects the severity of a potential full closure of the Strait of Hormuz. A sustained disruption could remove approximately 20 million barrels per day from global markets. For comparison, the 1973 oil crisis was triggered by a removal of about 7% of global supply, which caused a 300% price increase. Prior to the recent spike, West Texas Intermediate (WTI) crude prices had been fluctuating. In 2023, the average price was around $77.80 per barrel, and in 2024 it averaged roughly $75.72. The price hovered in the mid-$60s to low $70s for much of early 2026 before the recent escalation. The economic consequences of a prolonged conflict and choked-off oil supply are significant. A sustained price of $100 per barrel could add 0.6-0.7% to global inflation, tightening financial conditions and potentially pushing fragile economies toward recession. In response to the escalating crisis, shipping giant Maersk announced a halt to passage through both the Strait of Hormuz and the Suez Canal, citing safety concerns. This move is likely to further snarl global trade and increase transportation costs for a wide range of goods beyond oil.