Oil Prices Surge Over 8% as U.S-Iran Conflict Threatens Supply Routes

Crude oil prices experienced their sharpest single-day rally in over a year as escalating military tensions between the United States, Israel, and Iran raised fears of prolonged disruptions to global energy supplies through the world’s most critical oil transit chokepoint.

West Texas Intermediate crude jumped more than 8.8% to $72.92 per barrel in Monday morning trading, while Brent crude climbed 7.8% to $78.55 per barrel. The surge represents the most significant one-day move in oil prices since early 2024, driven by immediate concerns over supply security following coordinated U.S. and Israeli airstrikes that killed Iranian Supreme Leader Ayatollah Ali Khamenei and other senior officials. Energy shares rallied both in the ASX, and Asian trading, with Shanghai oil stocks posting gains even as broader markets declined. U.S. futures indicated sharp losses at the open, with S&P 500 contracts down 1.5% and Dow Jones futures falling 1.2% as markets priced in broader economic uncertainty.

Safe-haven assets surged alongside oil, with gold up 2.5%, above USD$5,400 per ounce, and the U.S. dollar strengthening as markets sought shelter from geopolitical risk. The moves reflect growing anxiety over potential supply disruptions that could ripple through the global economy, particularly affecting energy-dependent economies in Asia.

Driving The Move

The immediate catalyst for the oil price spike centers on the Strait of Hormuz, where tanker traffic has effectively ground to a halt. According to consulting firm Rystad Energy, shipping companies have implemented precautionary measures that have left vessels anchored outside the narrow waterway rather than attempting passage. More than 14 million barrels per day typically pass through the Strait, representing approximately one-third of the world’s total seaborne crude exports.

The disruption carries particular significance for Asian economies, with roughly three-quarters of Strait shipments destined for China, India, Japan, and South Korea. Major shipping operators including Maersk and Hapag-Lloyd have suspended operations in the region, contributing to a reported 70% reduction in tanker traffic through the chokepoint. Over 150 vessels have anchored outside the Strait to avoid potential attacks, creating a bottleneck that threatens to tighten global supply chains.

Adding to market anxiety, an oil tanker named Skylight was attacked approximately five nautical miles north of Khasab Port in Oman, resulting in four injuries among the 20-member crew. The incident underscores the tangible risks facing maritime operations in the region and validates the cautious stance adopted by shipping companies.

Iran’s position as OPEC’s fourth-largest oil producer compounds the uncertainty. With leadership succession unclear following the death of senior officials, markets face questions about production continuity and potential retaliatory measures that could further constrict supply. The country’s significant role in global oil exports means any prolonged disruption could push prices substantially higher, with some analysts suggesting levels above $100 per barrel remain possible if the conflict extends.

President Donald Trump stated Sunday that combat operations will continue until all U.S. objectives have been met, though he noted that Iran wants to talk and he has agreed to do so, leaving open the possibility of de-escalation that avoids a prolonged disruption.

Outlook

The trajectory of oil prices from current levels depends almost entirely on how quickly the Strait of Hormuz returns to normal operations. If tanker traffic resumes within days and diplomatic channels produce a ceasefire, markets could see prices retreat from elevated levels as supply concerns ease. However, a prolonged closure or continued attacks on shipping would likely drive prices toward $100 per barrel or higher, particularly given the concentration of Asian demand dependent on these routes.

The International Energy Agency has emphasized that markets remain well supplied to date, though the agency is monitoring developments closely. Strategic petroleum reserves in major consuming nations provide some buffer against short-term disruptions, and the global economy has proven more resilient to oil shocks than in previous decades thanks to improved energy efficiency and diversified supply sources.

Technical factors also support higher prices in the near term. The sharp move above $70 for WTI breaks through resistance levels that had capped gains for months, potentially attracting momentum-driven buying that could amplify the geopolitical premium. Options markets are pricing in elevated volatility, suggesting traders expect continued price swings as the situation develops.

The broader economic implications extend beyond energy markets. Sustained higher oil prices would add to inflationary pressures just as central banks have begun to ease monetary policy, potentially complicating rate decisions in coming months. Transportation costs, petrochemical inputs, and consumer fuel expenses would all face upward pressure, weighing on economic growth particularly in oil-importing nations.

Markets now face a binary scenario: either diplomatic efforts succeed in reopening the Strait and prices retreat toward pre-crisis levels, or the conflict escalates and supply disruptions intensify, driving oil substantially higher and threatening global economic stability. With tankers spooked and shipping lanes compromised, the coming days will prove critical in determining which path prevails as geopolitical risk reasserts itself as the dominant force in energy markets.