Saturday marks one month since the United States and Israel launched attacks against Iran, resulting in a war that sent shockwaves through the global oil markets.
The war, which was first started to dismantle Iran’s nuclear weapons capabilities, has quickly become about the control and future of the Strait of Hormuz, one of the most crucial waterways for oil and gas trade across the globe.
Iran has effectively shut down the strait, blocking thousands of tankers from entering or exiting the Persian Gulf, preventing tens of millions of barrels of crude and other oil products from passing through daily.
Roughly 20 million barrels passed through the strait every day before the war, equivalent to around one-fifth of global demand.
Prices tick up
Oil is a fungible commodity, with prices set on a global market, meaning any supply disruption – much less one as significant as the one in the Middle East – can drive up bidding for crude from elsewhere in the market.
Leading up to the start of the war, crude oil prices were around $70 per barrel, with Brent Crude selling at $72 and West Texas Intermediate at $67.
As the war has escalated, with Iran retaliating by attacking energy infrastructure in the Gulf and Israel scaling up its strikes by targeting Iranian gas fields, prices soared by more than 30%. During the second week of the war, crude oil prices hit a record high of around $119 per barrel.
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While some vessels have been able to squeeze through, traffic has dropped to a near standstill, displacing roughly 180-250 million barrels of oil from global supply, according to some estimates.
“It’s an unprecedented scale of global energy disruption, with about 15 million barrels of oil equivalent per day” removed from the markets, Matthew Bernstein, vice president of North America oil and gas analysis at Rystad Energy, told the Washington Examiner.
As of Friday afternoon, prices remained around the $100-per-barrel line, with Brent crude selling at around $113 per barrel and West Texas Intermediate priced at $99 per barrel.
An attempt to calm the markets
There has been an international joint effort to stanch the rising prices, as the shipping disruptions have driven up the prices of gasoline and jet fuel, as well as other commodities, such as helium, sulfur, and fertilizer.
The International Energy Agency agreed to release a record 400 million barrels from global stockpiles, with the U.S. alone releasing 172 million barrels from the Strategic Petroleum Reserve.
The IEA has also recommended that people work from home, fly less, and drive more slowly to lower overall oil and gas demand.
“Those are the things that have been basically guiding the market itself,” Neil Atkinson, former head of the Oil Industry and Markets Division at the IEA, told the Washington Examiner.
“As far as the market is concerned, there’s all these things happening, strategic stocks, rationing of demand restraints, rationing of product exports, or some countries’ shortages … That’s what’s driving things,” he said. “That’s what really matters.”
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Prices did drop slightly on news that the IEA was planning to release oil reserves in the early days of the war, with Brent and WTI trading around $85 per barrel. The IEA later estimated that prices dropped by $18 per barrel following the coordinated stock release.
Analysts have said, however, that the situation remains fluid, particularly as day-to-day trading has been extraordinarily influenced by remarks and social media posts made by Trump administration officials.
“The announcements from the administration are really holding much, much more weight than any other kind of news when it comes to how prices are quickly moving,” Bernstein said.
“Traders and market participants understand that these SPR releases or other things are not really getting close to addressing the total supply deficit that we have in the market right now, and that can only really occur by an end to the conflict,” he added.
Influencing the narrative
It became quite clear during the start of the second week of the Iran war that President Donald Trump and his Cabinet members could influence oil prices with just a single sentence.
Early on the morning of March 9, Brent and WTI soared more than 30% to the peak of around $119 per barrel, before plunging just hours later to around $89 and $86 per barrel, respectively.
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The reason why? Trump said the war was “very complete.”
The Trump administration’s influence became even more evident the following day, when Energy Secretary Chris Wright’s X account shared a post claiming the U.S. Navy had successfully escorted an oil tanker through the Strait of Hormuz.
If true, it would have marked a major success for the administration in its desire to restore normal oil flows through the strait. And as a result, crude prices fell by more than 17%.
The post, however, was deleted roughly 15 minutes later, and prices began to tick up again. The White House later clarified that the Navy had not escorted any ships.
Trump appeared to jawbone the markets further in the last few weeks, announcing escalated military action on the weekends – when the markets are closed – before sending a message of de-escalation in the first hours of early trading.
As recently as Monday, Trump said he was delaying U.S. strikes on Iranian energy infrastructure, which were announced two days before, by five days.
His post caused Brent crude to drop by nearly 11%, below $100 per barrel, and WTI to fall by more than 10% to around $88 per barrel.
As Iran pushed back on Trump’s messages of de-escalation, rejecting the administration’s 15-point plan for peace, prices began to tick back up on Wednesday and Thursday.
Trump attempted to settle market fears again on Thursday, announcing yet another delay on U.S. attacks. This time, however, prices continued to rise into Friday, as reports indicated the administration was weighing sending another 10,000 troops to the Middle East.
“Verbal intervention only goes so far until the markets call Washington’s bluff,” Hunter Kornfeind, an analyst with Rapidan Energy Group, told the Washington Examiner.
“I think the market participants are looking at the Truth Social posts and the comments of the White House, and now saying, ‘at the same time, we’re sending thousands of troops to the Middle East,’” he said.
Where things are headed
Kornfeind said that he believes it will be more difficult for verbal interventions to spook traders until there is a stronger “concrete development” that signals that the end of the war is near.
No matter what Trump or Iranian officials say in the coming days, analysts agree there is no way to bring down prices to sustainable levels unless the conflict ends and normal oil flows resume.
“We are heading towards a mega crisis unless normal operations can resume through the Gulf,” Atkinson said.
It is growing increasingly harder to predict how long prices will remain elevated in the coming weeks, as some say crude won’t drop below $100 a barrel until next year and others say it could drop again to $70 a barrel by May.
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Bernstein said he believes traders are not fully pricing how long the geopolitical effects of the war will last after energy flows resume, particularly as it remains unclear what the extent of the damage is to Gulf refineries and other energy infrastructure that has been caught in the crossfire in the region.
“Things aren’t just going back to how they were, or even a few dollars per barrel more than how they were when the conflict began,” Bernstein said.
