LONDON: Global oil prices surged sharply on Monday, rising more than 25 percent to their highest levels since mid-2022 amid supply cuts by major producers and growing fears of prolonged disruptions to shipping routes due to the escalating conflict involving United States, Israel and Iran.
Energy markets remain particularly concerned as the crisis is unfolding near the strategically important Strait of Hormuz, through which nearly one-fifth of the world’s oil supply normally passes.
Traders reported that tanker movements have slowed due to rising security risks, leaving Asian economies especially vulnerable because of their heavy reliance on Middle Eastern crude supplies.
International benchmark Brent crude rose by $24.96, or 27 percent, to $117.65 per barrel by early trading, marking what could become the largest single-day gain on record.
Meanwhile, West Texas Intermediate crude increased by $25.72, or 28.3 percent, to $116.62 per barrel.
Earlier in the session, WTI briefly climbed 31.4 percent to $119.48, while Brent reached $119.50 per barrel.
Market analysts say continued disruption to oil flows through the Strait of Hormuz could keep prices elevated.
“Unless oil flows through the Strait of Hormuz resume soon and regional tensions ease, upward pressure on prices is likely to persist,” said Vasu Menon, Managing Director for investment strategy at OCBC Bank in Singapore.
Supply disruptions
Several major producers have begun reducing output as the conflict disrupts energy shipments.
Industry sources said oil production in Iraq has fallen by nearly 70 percent at its main southern oilfields to around 1.3 million barrels per day, as exports through the Strait of Hormuz have been severely affected.
Meanwhile, Kuwait Petroleum Corporation has also begun cutting oil production and declared force majeure on some shipments.
Analysts say similar measures could soon be taken by Saudi Arabia and the United Arab Emirates if storage capacity becomes limited.
Energy infrastructure across the region has also faced security threats. Authorities in the UAE reported a fire in the Fujairah Oil Industry Zone after debris fell in the area, while Saudi officials said a drone targeting the Shaybah Oil Field was intercepted.
Political developments
Oil markets were also influenced by political developments in Iran following the appointment of Mojtaba Khamenei as successor to the late Iranian Supreme Leader Ali Khamenei.
Analysts say the development could complicate calls by Donald Trump for regime change in Iran and may prolong tensions in the region.
Some analysts predict that oil prices could rise further if disruptions continue, with WTI potentially reaching $120 to $130 per barrel in the near term.
Global impact
Experts warn that even if the conflict ends soon, consumers and businesses worldwide may face weeks or months of higher fuel prices due to damaged infrastructure, logistical disruptions and heightened security risks in shipping lanes.
In the United States, Senate Democratic leader Chuck Schumer urged the government to release crude from the Strategic Petroleum Reserve in order to stabilize markets and ease fuel costs for consumers.