Oil Prices Climb as Iran Conflict Disrupts Global Energy Flows

Oil prices are moving higher as the U.S.-Israeli conflict with Iran disrupts energy flows across the Middle East. Prompt WTI futures traded up $5 per barrel this morning after gaining more than $4 in the previous session, while Brent rose roughly 7%, reaching its highest level since July 2024. Since the start of the attacks, both benchmarks have risen by more than 15%.

The increase follows continued military exchanges between the United States, Israel, and Iran, with additional strikes reported in the UAE, Saudi Arabia, Qatar, and Lebanon. The U.S. Embassy in Riyadh was struck by drones overnight, and Secretary of State Marco Rubio warned that further U.S. military action could intensify. President Donald Trump indicated operations could extend longer than initially projected. At the same time, Qatar and the UAE are privately lobbying for de-escalation, highlighting growing regional anxiety over a prolonged conflict.

Strait of Hormuz Disruption Raises Supply Fears

The market's central concern is the Strait of Hormuz, an important shipping lane that handles around one-fifth of global oil and gas supply. Iranian media reported the waterway has been closed, and Tehran warned it would fire on ships attempting to pass. Tankers are idling near the strait, insurers are withdrawing war-risk coverage, and freight rates have surged. With five ships reportedly hit and traffic largely halted, crude and fuel shipments are facing significant disruption.

These shipping constraints are already moving through regional energy infrastructure. Qatar has halted liquefied natural gas production, Saudi Arabia has shut its largest refinery, and production in Iraqi Kurdistan has nearly ceased. Fires have been reported at key ports in the UAE and Oman, and Iraqi crude loadings at Turkey's Ceyhan terminal have stopped. Analysts caution that while shipping disruptions are significant, the greater risk to markets would be additional attacks on energy facilities, which could lead to long-term outages.

In response, Saudi Aramco is attempting to reroute some crude exports to its Red Sea port via the East-West pipeline to bypass Hormuz. However, the pipeline's capacity is limited relative to overall Saudi production, and analysts note that the infrastructure itself could become a target if tensions escalate further.

OPEC+ Raises Output

Meanwhile, OPEC+ announced a larger-than-expected production increase of 206,000 barrels per day beginning in April. Although the group cited steady economic conditions and healthy market fundamentals, some analysts argue that the additional barrels may not be sufficient to offset supply risks if the conflict deepens or shipping remains constrained.

Refining activity is also adjusting to tighter crude availability. Major Chinese refiners backed by Saudi interests have begun shutting units and bringing forward maintenance in response to supply concerns. China, which sources roughly half of its crude from the Middle East, is particularly exposed to disruptions in the region. Analysts expect additional precautionary run cuts if shipping through Hormuz remains restricted.

Refiners Begin Cutting Runs

The impact is especially visible in refined product markets. U.S. ultra-low-sulfur diesel futures have climbed 15%, reaching a two-year high, while gasoline futures have also advanced by 6%. European gasoil markets have surged as traders price in tighter supply, and diesel east-west spreads, have widened to levels not seen in more than three years. Diesel east-west spreads represent the price difference between Singapore diesel swaps (Asia) and ICE gasoil futures (Europe), frequently measured by the Exchange of Futures for Swaps (EFS). More than 400,000 barrels per day of diesel passed through the Strait of Hormuz last year, with one-third headed to Europe. With shipments disrupted, forward spreads have widened sharply.

Higher oil prices are also raising broader economic questions. Analysts estimate that a sustained $10-per-barrel increase could modestly reduce U.S. GDP growth next year and push headline inflation higher. Gasoline prices in the United States have moved above $3 per gallon, increasing political pressure. Secretary Rubio said that Treasury Secretary Scott Bessent and Energy Secretary Chris Wright will announce measures to mitigate the impact of rising energy costs. The International Energy Agency has also indicated it stands ready to stabilize markets, noting that member countries hold more than one billion barrels in emergency reserves.

For now, markets remain focused on the trajectory of the conflict. With military escalation, halted shipping, refinery shutdowns, and tightening diesel supplies all converging at once, crude prices are likely to remain elevated as traders assess how long disruptions in one of the world's most critical energy corridors may last.