Oil Prices Surge to Near 20-Month Highs as Iran Conflict Widens Disruptions Through Strait of Hormuz

Brent crude hits multi-month highs as Hormuz tensions disrupt shipping; Goldman Sachs sees $14 risk premium. Analysis by Nathan Abbington.

 As the U.S.-Israeli military operations against Iran escalated in late February and early March 2026, global oil markets reacted sharply to mounting threats against energy infrastructure and the critical Strait of Hormuz shipping lane. By March 2, Brent crude had risen significantly amid weekend attacks and production halts, with prices climbing notably in European trading. European natural gas prices also surged following disruptions at Qatari facilities. The strait, through which roughly one-fifth of global oil and a substantial portion of liquefied natural gas transit daily, saw reduced tanker traffic as insurers hesitated and some vessels rerouted, potentially increasing costs across supply chains. The duration of any supply shock remains a key variable in assessing its economic impact, as analysts have noted that prolonged disruptions could amplify inflationary pressures while shorter ones might prove transitory.
On March 3, research from Goldman Sachs examined potential oil price trajectories tied to the conflict. The firm highlighted that prices had already increased following initial strikes, with traders incorporating a roughly $14 per barrel risk premium to reflect heightened uncertainties. This premium aligned with scenarios involving temporary but significant interruptions to strait flows. Depending on the scope and length of any restrictions, Goldman Sachs projected price impacts ranging from about $1 per barrel for a limited 25 percent partial closure over one month with full utilization of spare pipeline capacity, to as high as $15 per barrel for a complete one-month shutdown without offsets. Daan Struyven, co-head of Global Commodities Research and head of Oil Research at Goldman Sachs, observed that oil prices can rise substantially more if the market demands a premium for the risk of more persistent supply disruptions. The analysis drew on historical precedents where geopolitical-driven spikes, such as Brent's climb from around $65 in early June 2025 to the low $80s before retreating, often proved temporary once supply concerns eased. Iran's production, at approximately 3.5 million barrels per day of crude and 0.8 million barrels per day of condensate in 2025—about 4 percent of global supply—combined with the strait's handling of nearly 20 million barrels per day of oil movements, underscored the vulnerability. An estimated 4.2 million barrels per day could potentially bypass the strait via existing pipelines, leaving roughly 16 million barrels per day exposed in a full closure.
By March 4, reporting clarified the extent of direct attacks on Gulf energy assets. Facilities in Saudi Arabia, Qatar, the UAE, Oman, and elsewhere sustained damage from Iranian drone strikes or related incidents. In Saudi Arabia, the Ras Tanura refinery faced operational halts after a fire linked to intercepted drones. Qatar's Ras Laffan Industrial City and other sites saw production suspensions for LNG and downstream products following strikes. Similar disruptions affected terminals and ports in the UAE and Oman, while tankers including one Honduran-flagged vessel were targeted off the UAE coast. Iran declared the strait effectively closed to certain vessels, warning of severe consequences for attempted passages. These events compounded precautionary shutdowns at Israeli gas fields, Iraqi Kurdistan oil operations, and Iraq's Rumaila field. The Middle East's dominant share of global reserves and production—Saudi Arabia with 267 billion barrels, Iran 209 billion, and others—along with nearly half of world oil exports and significant natural gas volumes centered on the South Pars/North Dome field, amplified the global implications.
Oil benchmarks reached near 20-month highs on March 5 as supply fears intensified from halted transits and forced shut-ins. West Texas Intermediate crude for April delivery settled up 8.51 percent, or $6.35, at $81.01 per barrel—its highest since July 2024—while Brent for May gained 4.93 percent, or $4.01, to $85.41 per barrel. The wider spread between WTI and Brent reflected differing exposures to Gulf disruptions, elevated freight costs, and U.S. refinery dynamics. Ship-tracking data indicated around 300 tankers stranded inside the strait, with daily transits dropping dramatically from an average of 24 since January to just four on March 1. Iraq curtailed nearly 1.5 million barrels per day of output due to storage constraints, Qatar suspended LNG production, and similar pressures built in Kuwait and the UAE. Chinese refiners prioritized domestic needs by halting diesel and gasoline exports, while Japanese refiners sought strategic reserve releases and Kuwait reduced processing rates. John Kilduff, partner at Again Capital, stated there is no movement in the Strait of Hormuz so prices will grind higher, and with countries having to shut in production then we will be delayed even longer because it is not like you can just resume production at full strength, that will be a problem for a while. Dennis Kissler, senior vice president of trading at BOK Financial, added if this persists into next week, the eventual restarting of production and revamping of shipping once the strait is reopened will also take time to get back online. Priyanka Sachdeva, a senior market analyst at brokerage Phillip Nova Pte, warned if we see even one more successful strike on an oil tanker or infrastructure, or sustained disruption, prices can spike sharply again. The International Energy Agency emphasized the sheer volume of oil exported via the Strait of Hormuz, and the limited options to bypass it, means that any disruption to flows would have huge consequences. An Iranian military commander, Amir Heydari, stated we do not believe in closing the route at all.
Further developments on March 5 revealed diplomatic efforts to mitigate the crisis. China engaged in talks with Iran to secure safe passage for oil and Qatari LNG cargoes, given Beijing's dependence on Middle Eastern supplies for about 45 percent of its crude imports. Sources indicated China's dissatisfaction with shipping paralysis and pressure on Tehran for safe transit. While some vessels reportedly passed after signaling adjustments, broader allowances remained limited, with restrictions primarily targeting U.S., Israeli, European, and allied shipping. Crude prices had risen more than 15 percent since the conflict's onset.
In U.S. trading on March 5, WTI topped $80 per barrel amid ongoing tanker attacks, including reported strikes and explosions near Iraqi waters. WTI closed at $81.01 after an 8.51 percent gain—the largest single-day increase since May 2020—while Brent settled at $85.41. U.S. retail gasoline averaged $3.25 per gallon, up nearly 27 cents week-over-week. President Donald Trump indicated further action to reduce pressure on oil is imminent, while White House press secretary Karoline Leavitt said I don’t want to commit to a timeline, but certainly it’s something that is being calculated actively by both the Department of War and the Department of Energy. Options under review included emergency reserve releases and Treasury futures purchases.
Asian trading later on March 5 showed a pullback after the five-day rally, with Brent down 1.5 percent to $84.13 and WTI down 2 percent to $79.44, though both remained poised for weekly gains exceeding 17 percent. ING analysts noted the market remains well supported with few signs of de-escalation in the Middle East and a resumption of energy flows in the region. They added clearly, with every day that goes by without flows resuming, the oil market will reprice the amount of supply lost, leaving room for prices to move higher, and while this might help put some immediate downward pressure on the market, it is not a game-changer. The only way for prices to come down on a sustained basis is a resumption of oil flows through the Strait of Hormuz. The U.S. permitted limited Russian oil sales to India for 30 days to alleviate some pressure.
Analysts weighed longer-term implications for key players. Neil Quilliam, a Middle East and North Africa programme fellow at Chatham House, described these are substantial losses to global energy markets and cannot be easily replaced. He noted so far, the Iranian strikes against energy assets in the Gulf have not caused untold damage, so as long as production can return when the strait opens, then markets will take some comfort from that. On the U.S., Quilliam said the US is mostly insulated from the oil price increase, given that it is now the world’s largest crude exporter; however, it will import higher prices, given that the country imports refined products and that will be felt at pump. He added the US should be able to capitalise upon the loss of Qatari LNG and absorb market share, though it would take months for companies to increase production to take advantage of conditions and by then the crisis may well be over. In theory, the US can benefit from the current disruptions, but much depends on the longevity of the war. Russia stands to gain from reduced Saudi and Iranian supplies, increasing exports to China and India at elevated prices with reduced sanction enforcement on its shadow fleet.
The price surge injected a notable shock into the global economy without yet constituting a full crisis. Brent had risen to over $77 per barrel early in the episode, briefly nearing $82—its highest since January 2025. A $10 per barrel increase typically translates to higher costs for fuels and goods, acting as a negative supply shock that elevates inflation while constraining growth. Compared to the 2022 Ukraine-related spike above $120 per barrel, the current move appeared more contained amid softer demand and declining baseline inflation in many economies. If disruptions prove brief, effects could remain manageable; sustained higher prices would heighten risks of renewed inflation and slower expansion.

Throughout the week, the conflict’s effects extended beyond crude benchmarks to refined products and freight markets. European diesel futures reached their highest level since October 2022, U.S. diesel futures jumped 10 percent to more than $3.60 per gallon, and Europe’s diesel benchmark rose over 40 percent since hostilities began. In the United Kingdom, heating-oil suppliers reported managing surges in demand. The Trump administration expressed no immediate concern over rising U.S. gasoline prices, with the president prioritizing the military operation and indicating a desire for U.S. involvement in selecting Iran’s next leader once the conflict ends. Options under consideration included political-risk insurance and naval escorts for tankers, though traders remained skeptical. The overall picture underscored that while supply disruptions had driven prices to near two-year highs and injected fresh uncertainty into global markets, the duration of any closure of the Strait of Hormuz and the pace of any de-escalation would ultimately determine whether the episode evolved from a significant economic shock into a deeper crisis.

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