Crude oil prices are surging, nearing a five-month high, as escalating tensions in the Middle East stoke fears of potential supply disruptions. The conflict between Israel and Iran, now in its fifth day, is a primary driver of this upward trend, injecting uncertainty into the energy market.
The most recent catalyst involves both Israel and Iran halting hydrocarbon production at major offshore assets. Israel reportedly targeted key Iranian oil and gas infrastructure, including the South Pars gas field, which Iran shares with Qatar. These actions have raised concerns about broader disruptions to energy exports from the region.
Adding to the unease, US President Donald Trump has heightened the stakes with aggressive rhetoric toward Iran, declaring that the US knows the whereabouts of Iran's Supreme Leader and demanding "UNCONDITIONAL SURRENDER." Such statements have diminished hopes for a quick resolution and fueled worries about a protracted conflict.
Market analysts are closely monitoring the situation, with some believing that further escalation could endanger energy assets in Israel and Qatar, potentially disrupting energy exports and causing ripple effects across global supply chains, especially in Asia and Europe. James Hill, CEO of MCF Energy, noted that oil prices spiked significantly when the conflict initially began.
Concerns extend to the Strait of Hormuz, a critical transit point for global oil supplies. While some analysts believe a complete closure of the strait is unlikely, even an attempt to do so could trigger a sharp rise in oil prices and potentially draw the United States more directly into the conflict. Around 20-25% of the world's oil passes through this strait.
These geopolitical factors have significantly impacted crude oil prices, pushing West Texas Intermediate (WTI) prices above the 200-day Exponential Moving Average (EMA) for the first time since early this year. WTI crude futures rose more than 4% to around $75 per barrel. Brent crude also experienced a surge, trading at $75.09 a barrel, up 2.54% on the day.
The rise in crude oil prices is having a corresponding effect on the stock market. Shares of oil companies like Valero Energy, APA, Marathon Petroleum, Chevron, Hess, and Occidental Petroleum have seen gains. Conversely, airline stocks have fallen, with United Airlines and Delta Air Lines experiencing significant declines, as fuel costs represent a substantial and volatile expense for these carriers.
Despite the price surge, some analysts believe that market fundamentals remain bearish, and the price spike may be short-lived unless energy infrastructure is directly targeted. S&P Global Commodity Insights analysts suggest that while retaliatory attacks from Iran are expected, the oil price upside could fade if exports are not significantly disrupted. However, Goldman Sachs analysts suggest that, in a scenario where Iran's oil export infrastructure is damaged, Brent crude could peak over $90/b before falling back in 2026 as supply recovers. They also warn that prices could rise even more sharply if broader regional oil production or shipping is negatively affected.
The collision between two ships in the Gulf of Oman has also contributed to market volatility, further underscoring the precariousness of the situation. While volatility levels in financial markets have increased, they remain below the highs seen during previous crises, suggesting a degree of resilience in the face of ongoing geopolitical tensions.
The situation remains fluid, and the trajectory of crude oil prices will likely depend on how the conflict between Israel and Iran unfolds and whether it leads to significant disruptions in oil supply.
