Oil markets are likely to open higher after a third week of hostilities tied to the U.S.-Israeli campaign against Iran raised the prospect of further damage to energy infrastructure and prolonged closure of the Strait of Hormuz in what is already the world’s largest supply disruption.
U.S. President Donald Trump warned of additional strikes targeting Kharg Island - a major Iranian oil export hub - a move that prompted Tehran to signal further retaliation. The exchanges of strikes and counterstrikes have pushed global crude benchmarks sharply higher and unsettled financial markets.
Both Brent and U.S. West Texas Intermediate crude futures have climbed more than 40% so far this month, reaching levels not seen since 2022 after U.S.-Israeli action on Iran led Tehran to stop shipping through the Strait of Hormuz. The strait is a strategic chokepoint for roughly one-fifth of global oil flows.
President Trump has urged several governments - including China, France, Japan, South Korea and Britain - to contribute warships to help secure the waterway. Militarily, the United States struck targets on Kharg Island on Saturday, and Iran followed with drone attacks on a significant UAE oil terminal.
Financial analysts at JP Morgan, led by Natasha Kaneva, described recent events as an escalation, noting that until now the region’s oil infrastructure had largely avoided direct hits. The analysts flagged several Gulf facilities as critical and highly vulnerable, including the UAE’s Fujairah terminal and Saudi Arabia’s Ras Tanura export terminal and Abqaiq oil processing installations.
Operational conditions at some nodes have shown signs of recovery: a Fujairah-based industry source reported that oil loading at the Fujairah terminal had resumed on Sunday. Fujairah, situated outside the Strait of Hormuz, is the export point for about 1 million barrels per day of the UAE’s Murban crude - a quantity equivalent to roughly 1% of global demand.
Supply-side interruptions are substantial. The International Energy Agency estimates that global oil supply will fall by 8 million barrels per day in March because of shipping disruptions, while producers in the Middle East have cut output by at least 10 million barrels per day.
In response to the sudden price surge, the IEA agreed last week to release a record 400 million barrels from strategic stockpiles held by member countries. Japan intends to begin releasing its allocated oil on Monday.
Prospects for a near-term diplomatic resolution appear dim. The Trump administration has, according to three sources familiar with the matter, rebuffed initiatives from Middle Eastern allies to open diplomatic talks, while Iran has rejected any ceasefire until U.S. and Israeli strikes cease.
Market context
Crude benchmarks have reacted to both physical disruptions to flows through the Strait of Hormuz and to direct attacks on export infrastructure, prompting both emergency reserve releases and calls for military escorts of commercial shipping. The combination of a large reduction in supply and heightened geopolitical risk has driven the price action and continues to keep oil markets volatile.