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Oil Spikes on Hormuz Disruptions as Middle East War Escalates

(Bloomberg) -- Oil surged the most in four years as traders gauged the impact of the effective closure of the Strait of Hormuz triggered by US and Israeli strikes against Iran, with hostilities escalating across the region.

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Global benchmark Brent was more than 9% higher near $80 a barrel, after earlier rallying by as much as 13% to the highest since January 2025. Tanker traffic through the strait — the chokepoint off Iran’s coast that handles a fifth of the world’s oil and large volumes of gas — has largely halted, with a self-imposed pause in place by shipowners and traders as the conflict spreads.

In the latest exchanges, Saudi Aramco halted operations at the Ras Tanura refinery in Saudi Arabia after a drone strike in the area, according to people familiar with the matter. Elsewhere, residents in Dubai and Abu Dhabi reported hearing blasts, while Agence France-Presse said smoke was rising from US embassy in Kuwait City. In Lebanon, Iranian proxy Hezbollah attacked Israel.

Iran said it had downed a US fighter jet that crashed in Kuwait, the semi-official Tasnim news agency reported.

The war marks a dangerous new phase for the global oil market. The US and Israel fired missiles at targets across Iran on Saturday, while urging local people to overthrow the Islamic regime. Tehran responded with a wave of strikes against Israel, as well as US bases and other targets in states including Saudi Arabia, Qatar, the United Arab Emirates, Kuwait and Bahrain. Iran’s Supreme Leader, Ayatollah Ali Khamenei, was killed.

Product prices rallied along with crude oil, with futures for diesel, or gasoil, surging as much as 20%.

While Iranian authorities said on Sunday that the Hormuz waterway remained open, they also said they had attacked three oil tankers. President Donald Trump, meanwhile, said US forces sank nine Iranian naval ships, and that combat operations would continue until all objectives were completed.

If the tanker “traffic resumes quickly, or there’s credible de-escalation or some back-room diplomacy talks, then you’ll see some fade,” said Haris Khurshid, chief investment officer at Karobaar Capital LP in Chicago. “Otherwise, we probably consolidate at elevated levels.”

In reaction to the widening conflict, OPEC+ agreed at a pre-arranged weekend meeting to raise quotas next month by 206,000 barrels a day. The group — which includes Iran, as well as Saudi Arabia and Russia — had been expected to resume modest hikes before the outbreak of hostilities on Saturday.

Crude has posted back-to-back monthly gains this year on sustained geopolitical tensions and a series of localized supply snarls. The advance has come despite widespread expectations that the oil market faced a major surplus, after supply hikes by OPEC+ and nations outside the group.

“We see Brent oil trading in the $80-to-$90-a-barrel range in our base case over at least the coming week,” Citigroup Inc. analysts including Max Layton said in a note before the start of trading on Monday.

“Our baseline view is that the Iranian leadership changes, or that the regime changes sufficiently as to stop the war within one-to-two weeks, or the US decides to de-escalate having seen a change in leadership and set back Iran’s missiles and nuclear program over the same time frame,” they added.

Morgan Stanley, meanwhile, raised its second-quarter Brent forecast to $80 a barrel from $62.50.

Iran pumps about 3.3 million barrels a day, or 3% of global output, but the nation wields greater influence over energy supplies given its strategic location alongside the strait. Oil from the Persian Gulf must pass through the waterway to get to major markets such as China, India and Japan.

In comments to the New York Times, Trump said the US intended to sustain its assault on Iran for “four to five weeks.” He also said he was open to lifting sanctions if the new leadership showed itself to be a pragmatic partner.

In the event that tanker flows through the Strait of Hormuz are not restored quickly, oil could exceed $100 a barrel, according to Wood Mackenzie. Even with OPEC raising production in April, the bloc’s additional volumes and spare capacity will be inaccessible if the waterway remains closed, it said.

Should the waterway remain closed for 25 days, major oil producers in the Middle East could be forced to suspend output as storage tanks and offshore storage reach their limits, according to analysts from JPMorgan Chase & Co.

The jump in energy costs — if maintained — risks boosting inflationary pressures around the world. That stands to complicate the task facing central bankers including the US Federal Reserve as they seek to manage the pace of price gains, while also supporting growth and employment.

Ahead of the war with Iran, President Trump had adopted an increasingly aggressive foreign policy. In late January, US forces swooped into Venezuela and seized former President Nicolás Maduro, with the administration then asserting control over the nation’s oil industry.