The escalating military conflict between the US, Israel, and Iran has triggered a severe disruption in global energy markets, sending oil prices skyrocketing and raising fears of a broader inflationary shock. Brent crude futures surged as much as 29% to $119.50 per barrel over the weekend, marking its most dramatic intraday move since April 2020, while West Texas Intermediate (WTI) crude jumped about 26% above $115.
The core of the crisis is the effective closure of the Strait of Hormuz, a critical maritime chokepoint that normally handles roughly one-fifth of the world's oil supply. The halt in tanker traffic has severely disrupted exports from major producers. Kuwait, the UAE, and Iraq have been forced to scale back production significantly. Industry officials report that output from Iraq's three main southern oilfields has dropped about 70%, from roughly 4.3 million barrels per day to 1.3 million.
Analysts at JPMorgan warn that Middle East production shut-ins could expand to more than 4 million barrels per day by next week as storage facilities fill and export routes remain blocked. This has caused Brent's prompt spread—the difference between its two nearest futures contracts—to widen dramatically to $8.59 per barrel in backwardation, compared to just 62 cents a month ago, indicating intense near-term supply tightness.
The price surge is already impacting consumers, with US retail gasoline prices hitting their highest level since August 2024. Governments are reacting: China has reportedly ordered major state refiners to suspend exports of diesel and gasoline, while South Korea is reviewing whether to introduce an oil price cap.
Amid the turmoil, Goldman Sachs analysts see a major investment opportunity in Chinese energy giants CNOOC and PetroChina, labeling them "must-own" stocks poised for significant cash flow growth. They note that CNOOC, with its pure-play exploration and production focus, is positioned to immediately capture upside from rising oil prices, with its cash flow potentially boosted by more than 10% even if Brent averages $85. PetroChina, with its integrated business spanning extraction to distribution, is seen as a cornerstone of China's domestic energy security during the supply crisis.
US political figures have commented on the situation, with former President Donald Trump stating on social media that a gain in "short term oil prices" was a "very small price to pay" for destroying Iran's nuclear threat, predicting prices will fall rapidly after the conflict. US Energy Secretary Chris Wright suggested that tanker traffic through the Strait could resume "in a few weeks, not months" once security threats are eliminated, but markets remain highly sensitive to any further escalation.
