Oil crosses $100 for the first time since 2022 as Iran’s war keeps the Strait of Hormuz closed, forcing a shutdown.
Oil prices topped $100 a barrel for the first time since the first months of Russia’s invasion of Ukraine in 2022, with no signs of slowing in what has been the fastest oil rally since the 1980s.
Futures for international price benchmark Brent crude (BZ=F) and US benchmark West Texas Intermediate crude (CL=F) both jumped more than 15% to surpass $108 per barrel almost immediately after trading began at 6 pm ET on Sunday. Brent crude and WTI crude have now gained more than 50% and 60%, respectively, since the conflict began.
US futures dipped into the red as the session opened. Futures on the S&P 500 (ES=F) and Nasdaq 100 (NQ=F) both lost about 1.5%, while Dow Jones Industrial Average (YM=F) contracts lost 2%.
Since the US and Israel launched an attack on Iran on Feb. 28, killing Supreme Leader Ali Khamenei and sparking violent retaliation from the Iranian government, oil prices rose, seeing their biggest weekly gain since at least 1985.
Crucially, the conflict sent the tankers in the Strait of Hormuz to a standstill. About 20 million barrels of oil a day, or one-fifth of the world’s crude oil supply, crosses the waterway that connects the Persian Gulf to the wider international market every day. Data from Vortexa shows that about 16 million bpd of oil is trapped behind the strait and cut off from the world market.
Macquarie strategist Vikas Dwivedi wrote in a recent client note that, “A few weeks of the Hormuz shutdown will create a domino effect of events that could drive crude to $150 or more.”
In the week since US and Israeli airstrikes began, what began as a regional conflict focused on destroying Iran’s nuclear power and potentially fueling a regime change has escalated into a war engulfing the Middle East.
Airports, apartments, military bases, and other infrastructure through Saudi Arabia, the United Arab Emirates, Bahrain, Oman, and dozens of other countries have all been subject to missiles and drone strikes by Iran. The skies above Iran darkened over the weekend after airstrikes hit oil depots near the cities of Tehran and Kharaj.
The conflict has also turned to energy infrastructure across the region, further threatening an already strained supply chain.
Bahrain’s Bapco Energies refinery attacked; Saudi Arabia’s Ras Tanura refinery taken offline; and Qatar’s Ras Laffan LNG complex has declared force majeure. Oil tankers in the Persian Gulf have been hit by missiles and drones, and Iran’s Revolutionary Guards have threatened violence against any ship trying to cross the Strait, even as they declared the area “open.”
With nowhere to export their oil, producers have begun to cut back, indicating a serious lack of supply in the market. Iraq has now cut 60% of its oil production, according to Bloomberg, and Kuwait has also begun shutting down production. If the Strait of Hormuz remains unavoidable, production cuts could rise to 3.3 million bpd on the eighth day; to 3.8 million bpd on the 15th; and to 4.7 million bpd on the 18th, according to a survey from JPMorgan Chase analysts.
Reports over the weekend indicate that Iran has also targeted critical civilian infrastructure, as the Ministry of Interior in Bahrain said a major desalination plant was damaged in an Iranian drone strike. Desalination plants are essential in the Middle East to provide drinking water throughout the region.
Rising oil prices have begun to affect Americans at the pump. The national average for gasoline pump prices across the country sat at $3.450 per liter on Sunday, 15% above the $2.984 average last week.
In a note to clients on Friday, economists at Goldman Sachs wrote that if oil prices “can temporarily rise to $100/bbl,” the bank estimates that global headline inflation could rise by 0.7 percent and global growth could slow by 0.4 percent.
Jake Conley is a news reporter covering US equities for Yahoo Finance. Follow him on X at @byjakeconley or email him at jake.conley@yahooinc.com.
