Markets have largely learned to mitigate oil shocks caused by conflicts, with crude oil prices often rebounding quickly after the initial pop. But analysts say Iran’s latest attacks are different.
Oil prices have soared since the US and Israel launched a major airstrike against Iran on Saturday, killing Supreme Leader Ayatollah Ali Khamenei and sparking a violent and chaotic response from Iran that has gripped the Middle East.
Futures tied to Brent crude (BZ=F) and West Texas Intermediate crude (CL=F) rose more than 9% on Tuesday morning ahead of paring gains.
It is unclear whether oil futures will continue to rise. In past conflicts, such as last year’s 12-day war between Israel and Iran, prices spiked but fell back to their previous levels within days. But unlike past warmings, the current surge has already created concrete disruptions in shipping and insurance markets, tightening flows even before any confirmed physical damage to major oil infrastructure.
“Recent conflicts have led to a more muted reaction in oil prices, reform margins, and energy equities,” Mizuho equity analyst Nitin Kumar said in a client note published on Monday. “But this time may be different.”
It is worth noting that Iran’s Revolutionary Guard Corps has announced the closure of the Strait of Hormuz and has warned that it will shoot at any ship that tries to transport important ships. Video footage released by Al Jazeera on Monday afternoon shows an oil tanker burning in the strait.
This move by the Iranian military marks another material stage in the conflict. Attacks like this “have a huge psychological impact on the market,” Ben Cahill, non-resident fellow at the Arab Gulf States Institute, told Yahoo Finance.
While Iran’s initial retaliation focused mainly on military assets and strategic targets, recent attacks have increasingly affected energy-related facilities in the Gulf, prompting Saudi Arabia to close its largest refinery and Qatar to halt liquefied natural gas (LNG) production.
The IRGC’s latest stance — attempting to completely close the strait, something Iran has never successfully implemented, and threatening to fire on ships that pass through — further expands the risk premium that has already brought tanker traffic through the waterway to a near standstill. Five ships transiting the Strait of Hormuz have now been targeted, according to Britain’s Maritime Trade Commission.
Analysts said markets are no longer pricing in just geopolitical risk but also the potential for continued disruption to global energy trade. In a note released on Sunday, JPMorgan said the base-case assumption that unprecedented disruption would remain “impossible” failed after shipping through the strait approached zero for the first time in its modern history.
“This event forces a reassessment of geopolitical risk and the resilience of global energy trade,” JPMorgan analysts wrote.
According to the US Energy Information Administration, about 20 million barrels of oil per day, including almost all exports from Saudi Arabia, Iraq, Kuwait, Qatar and the United Arab Emirates, normally pass through the Strait of Hormuz. Existing bypass pipelines — designed in part for such conditions — can move only 5 million to 7 million barrels per day, according to energy analysts who spoke to Yahoo Finance, leaving many exports without an alternative route in case of prolonged shutdowns.
A cargo ship is photographed off the coast of the Emirates of Fujairah in the Strait of Hormuz on February 25. ·GIUSEPPE CACACE via Getty Images
JPMorgan estimates that Gulf producers can only hold output for three weeks before storage constraints force a mandatory production shutdown, where production must be halted to avoid storage capacity.
Even without confirmed infrastructure damage, shipping and insurance markets have effectively begun self-limiting traffic. Major operators have suspended Hormuz transits, while war risk premiums have risen and coverage is conditional or non-existent for some vessels, according to maritime briefings seen by Yahoo Finance.
This dynamic can only tighten supplies by delaying cargo, derailing ships, and raising the costs of delivered energy, even if actual oil production is not yet constrained. Goldman Sachs analysts estimate that crude oil already carries a real-time risk premium equivalent to a several-week break in the Hormuz Stream, with additional upside if markets begin to price in a long-term disruption.
If the disruptions persist beyond a few weeks, Brent crude oil could trade in the range of $100 to $120 per barrel, according to JPMorgan. And if prices rise too quickly, demand erosion could limit the rally, especially if higher oil costs weigh on global growth.
While short-term supply disruptions have historically produced very sharp but short-term prices, a sustained bottleneck in Hormuz traffic – especially one that forces Gulf producers to shut down output – would represent a fundamentally different shock.
“Risks related to the closure of the Strait of Hormuz could trigger sharp near-term movements in the commodities and energy subsectors,” Mizu Kumar wrote.
“The persistence of these effects will depend on whether physical constraints persist or fade amid broader macro and supply-demand dynamics.”
Jack Connelly is a breaking news reporter covering US equities for Yahoo Finance. Follow him on X at @byjakeconley or email him jake.conley@yahooinc.com.
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