Oil prices saw an increase of over 2%, driven by concerns over supply disruptions triggered by the ongoing US-Iran conflict. With the Strait of Hormuz, a vital passage for global oil trade, facing significant disruptions the market is on edge as geopolitical tensions rise. The conflict, now in its third week, has resulted in fears of further supply interruptions, prompting a surge in oil prices worldwide.
Brent crude oil futures have risen by 2.5%, to $102.69 per barrel, while US West Texas Intermediate crude oil futures have risen by 2.6%, to $95.92 per barrel.
The Strait of Hormuz, through which 20% of global oil and liquefied natural gas is transported, has emerged as a critical issue due to the US-Israel conflict with Iran. This geopolitical scenario is further worsened by the decision of the United Arab Emirates (UAE) to cut oil production by more than half which reflects the impact of the ongoing crisis.
The closure of the Strait of Hormuz has had a considerable impact on global oil supplies, with the UAE which is the third-largest oil-producing member of the Organization of Petroleum Exporting Countries, being forced to cut oil production.
Due to these production cuts, crude oil prices have risen, with analysts suggesting that crude oil prices could continue to increase if the conflict continues. The US-Iran conflict, which is currently in its third week, has already resulted in reduced crude oil exports, especially from the UAE.
The conflict has also resulted in a sharp increase in the price of oil, with the price of crude oil in the Middle East reaching an all-time high and becoming the most expensive oil in the world. Analysts believe that the reduced availability of oil for delivery and the increased tensions in the region have contributed to the increase in the price of oil.
However, there has also been a suggestion of a potential reduction in the supply of oil, as exports of crude oil from Iran’s Kharg Island continue, indicating that the potential risk of a shutdown may not be as severe as previously thought.
With the increase in the price of oil, there is a need to project potential interventions in the market to stabilize the price of oil. The International Energy Agency (IEA) has suggested that the energy situation may require the release of additional supplies of oil to address the potential impact of the increase in the price of energy.
This is in addition to the 400 million barrels of oil that is expected to be released from the strategic oil reserves. The suggestion by the IEA indicates the severity of the situation and the potential impact it may have on inflation.
In response to supply-related issues, financial institutions have revised their oil price forecasts. Bank of America has raised its forecast for the price of Brent crude in 2026 to $77.50 a barrel from $61. Additionally, Standard Chartered's price forecast has risen to $85.50 per barrel from $70. The forecasts indicate unpredictability of the conflict and potential impact on global oil supply.
Experts suggest that if the situation persists, oil prices are expected to rise more in the second quarter.
In the short term, oil prices are expected to fluctuate. The price is expected to be range-bound at a relatively higher price. The duration of the conflict is expected to be a major factor in oil prices in the coming days. The disruptions at the Strait of Hormuz and the effectiveness of measures to ease the supply shortage will also be of interest in the coming days.