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The escalation of the US-Israel conflict with Iran has sent global oil prices soaring and triggered a significant decline in Asian stock markets. As the war enters its fifth week, Brent crude surpassed $115 (£86.77) per barrel, marking a more than 3% increase, while US oil prices rose to $101.62, reflecting a nearly 2% gain. This surge positions Brent for its largest monthly increase ever recorded.
Stock Market Reactions
Asian equity markets reacted sharply to the rising oil prices, with Japan’s Nikkei 225 index plummeting by 2.8% and South Korea’s Kospi closing nearly 3% lower. The situation has been exacerbated by recent attacks from Iran-backed Houthi rebels in Yemen, who targeted Israel, and Iran’s threats to escalate retaliatory actions against US and Israeli assets.
US President Donald Trump, in a recent interview with the Financial Times, expressed willingness to “take the oil in Iran,” suggesting the possibility of seizing the crucial Kharg Island fuel hub. He dismissed concerns regarding Iranian defences, stating, “I don’t think they have any defence. We could take it very easily.” Trump drew parallels to the US’s strategy in Venezuela, where the government plans to maintain control over the oil industry indefinitely after the seizure of power from Nicolás Maduro earlier this year.
Geopolitical Tensions and Market Volatility
The conflict has led to severe volatility in global energy markets. Following retaliatory threats from Tehran against US and Israeli military actions, there are fears of attacks on maritime vessels traversing the Strait of Hormuz. Shipping expert Lars Jensen noted that even if the Strait were to reopen immediately, price increases would likely continue. “A lot of oil loaded in the Persian Gulf prior to this crisis is only now reaching refineries,” he explained.
Jensen, who now leads the consultancy Vespucci Maritime, warned that the ramifications of the US-Israel war could surpass those of the oil crisis in the 1970s, which led to widespread economic turmoil. He also highlighted the potential impact on food prices, as a significant percentage of the world’s seaborne fertiliser originates from the Gulf, potentially leading to soaring prices in developing nations.
The Supply Chain Effect
Judith McKenzie, a partner at investment firm Downing, indicated that the full ramifications of the ongoing conflict have yet to infiltrate consumer markets. “Oil shocks don’t show up instantly,” she stated during an interview on BBC Radio 4’s Today programme. “If we can achieve some resolution in the Gulf this week, then while it may take time to stabilise, inflation could be manageable.”
The Strait of Hormuz, a critical chokepoint through which about 20% of global oil and gas supplies normally pass, has seen its activities severely curtailed, contributing to the rising prices. Sean Foley, an energy markets expert from Macquarie University, anticipates further price hikes unless the conflict abates. The recent Houthi attacks raise alarms over their capacity to disrupt energy shipments through the Bab al-Mandeb strait, which could affect an additional 10% of the world’s oil supply, thereby straining global logistics.
Future Price Projections
Andrew Lipow from Lipow Oil Associates predicted that Brent crude could reach $130 per barrel in the coming weeks as geopolitical tensions continue to threaten global energy supplies. He voiced concerns about a potential worldwide economic slowdown, stating, “My greatest fear is that consumers simply run out of money as they’re spending more on energy and, in addition, food.”
The price of Brent crude was approximately $72 per barrel on 27 February, just before the US and Israel initiated strikes against Iran. By 18 March, the benchmark oil contract surged to $119.50, the highest level observed since June 2022.
Why it Matters
The ongoing conflict in the Middle East is not only pushing oil prices to unprecedented levels but also has the potential to disrupt global supply chains and exacerbate economic instability worldwide. As prices rise, consumers are likely to feel the pinch, leading to inflationary pressures that could hinder economic growth, particularly in vulnerable economies. The situation underscores the interconnectedness of geopolitics and global markets, emphasising the critical need for diplomatic solutions to ensure stability in energy supplies and economic health.
