The Iran Conflict Is Sending Oil Prices Soaring—What Happens Next

Critical Questions by Clayton Seigle

Published March 9, 2026

Global energy markets began the second week of the Mideast Gulf war with a historic price spike as energy exports from the region remained idle and fighting intensified among Iran, Israel, the United States, and Gulf nations. This Critical Questions examines the stakes for world energy markets and some of the proposed measures to address the looming oil and gas shortfall.

Q1: Why are oil prices suddenly surging, now more than $100 per barrel, compared to the more moderate market reaction last week?

A1: During the first week of the war on Iran, which ended on Friday, March 6, the oil market reacted with only modest price increases, with Brent, the international benchmark for crude oil, rising just $12.93 (18 percent) through Thursday. The "grace period" offered by the market came to a sudden end on Friday, when it became increasingly unlikely that the unprecedented halt to the region's oil and gas exports would be ending soon. This was manifest in Friday's further $7.28 price rise, leaving Brent up $20.21 (28 percent) from its prewar level.

The situation deteriorated further during the weekend, with the targeting of Saudi oil fields, fuel storage terminals in Tehran and Kuwait, and even water desalination plants in Iran and Bahrain. With President Trump calling for Iran's "unconditional surrender" and Tehran appointing the son of assassinated Supreme Leader Ali Khamenei, Mojtaba Khamenei, to take his place, traders are now positioning for a longer and more severe supply disruption.

Markets opened in Asia on Monday morning with Brent surging as high as $119 per barrel-before falling back toward $100.

Q2: What is required to arrest surging oil and gas prices that threaten to undermine economic security?

A2: This will require resumption of normal seaborne exports from the Mideast Gulf, typically 20 million barrels per day (mb/d) of crude oil and refined products, and 10 billion cubic feet per day of liquified natural gas. That resumption, in turn, will require either a cessation of hostilities or total neutralization of Iran's capability to disrupt shipping. Implicit in the resumption of typical export flows is the normal operation of oil and gas production, processing, transport, and loading onto tanker ships. Some facilities damaged by the fighting could take time to repair.

Q3: When tankers eventually try to transit the Strait of Hormuz, what threats will they face?

A3: With the Iranian navy largely incapacitated, the primary conventional military threat comes from anti-ship missiles, both ballistic and cruise (low-altitude) variants. This threat can likely be dealt with by U.S. forces relatively easily, although there's always a chance that some missiles can evade suppression and destruction missions. More concerning for safe passage are Iran's speedboats, naval mines, and drones, as these systems can be deployed with relatively less effort and associated equipment than anti-ship missile batteries. Their destructive firepower is less than that of missiles, but sufficient to cause damage and deter commercial shipping.

Q4: Can't Saudi Arabia and the United Arab Emirates redirect their Gulf oil exports to bypass the Strait of Hormuz?

A4: Only a bit, far less than needed to ease the crisis. Saudi Arabia's East-West pipeline has capacity of 5 mb/d, but half of it is already used for prewar regular deliveries, leaving only about 2.5 mb/d for potential bypass. The United Arab Emirates can redirect about 500 kb/d to bypass the strait. With 20 mb/d of Gulf oil exports halted, and bypass capacity of just 3 mb/d, 85 percent of volumes would remain stranded. Bahrain, Iraq, Kuwait, and Qatar have no bypass capability whatsoever; their shipments are wholly reliant on Hormuz transit.

Q5: Will the proposal for the International Development Finance Corporation to backstop maritime insurance motivate operators to resume exports?

A5: It can help but won't be enough in isolation, because it only addresses the insurance carriers' vulnerability-being hit with unaffordable casualty claims. But backstopping insurers is unlikely to motivate the insured parties-ship owners and operators-to risk their lives and assets by entering a still-dangerous Strait of Hormuz. As an analogy, even a driver with adequate insurance is unlikely to go driving with the knowledge that armed enemies will be shooting at him. Nevertheless, it will be an important step to remove insurer reluctance from the checklist of must-have measures to get traffic moving again. Only then will we see operators' willingness to move through a still-unsecured Strait of Hormuz.

Q6: What about reported plans from the U.S. Treasury to contain price spikes by aggressively selling oil futures?

A6: In theory, a wave of selling oil futures contracts will drive futures prices lower, and the U.S. Federal Reserve does have a substantial balance sheet from which to draw funding for such an initiative. As those contracts expire, the U.S. government would either have to buy back the contract or deliver the barrels. But there are important concerns with this approach to lowering futures prices in isolation from physical markets.

Physical and "paper" (financial) oil markets work in tandem to facilitate basic market functions. Oil producers hedge their risk of prices going too low by selling futures at an acceptable price, which they receive when they deliver the oil at contract expiry. Oil consumers hedge their risk in the opposite way, by buying futures and taking delivery of the oil at an acceptable price. In both cases, physical market participants use futures contracts to manage risk. But to perform this function effectively, futures contracts need to accurately reflect expectations of supply and demand. Artificial suppression of prices will distort fair values and disrupt oil producers' and consumers' ability to accurately establish prices.

Suppressing oil futures with aggressive Fed selling might also backfire, at taxpayer expense. Other central banks have tried and failed over the years to defend a market price, typically of currencies during balance-of-payment crises, and been overwhelmed by opposing market sentiment. Famously, the Bank of England was forced to abandon its defense of the British Sterling in 1992 when challenged by market participants (most notably George Soros) who doubted the sustainability of the bank's market intervention. The Bank of England eventually caved by abandoning its exchange rate target. Similar failed interventions in the face of speculative market attacks occurred with the Thai baht in 1997, the Russian ruble in 1998, and the Argentine peso in 2002.

If a skeptical oil market intent on high prices were to overwhelm a short Fed position, the federal budget could register huge financial losses-a double whammy alongside the already damaging effects of the oil price spike on inflation and consumer confidence.

Clayton Seigle is a senior fellow in the Energy Security and Climate Change Program at the Center for Strategic and International Studies and holds the James R. Schlesinger Chair in Energy and Geopolitics.

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