Crude oil prices surged on Tuesday as geopolitical tensions in the Middle East escalated, with market participants anxiously awaiting the outcome of a critical deadline set by former US President Donald Trump regarding Iran and the Strait of Hormuz. The West Texas Intermediate (WTI) benchmark jumped to over $115 per barrel, while Brent crude reached $111.25.
The price rally is directly tied to Trump's threat to destroy Iran's bridges and power plants if the country does not reopen the Strait of Hormuz by an 8:00 p.m. EDT deadline on Tuesday. Iran, which closed the vital waterway following US and Israeli attacks that began on February 28, has rejected ceasefire proposals and insists on a permanent conclusion to the conflict. The Strait of Hormuz typically handles approximately 20% of global oil flows, and its closure has removed an estimated 17 to 18 million barrels per day from transit.
Analysts warn that a widespread military conflict involving the US, Iran, and Israel would have severe, long-term consequences for the energy market. Iran has threatened to retaliate against attacks by bombing civilian infrastructure in neighboring countries like Kuwait and the United Arab Emirates, as well as key projects in Israel. Furthermore, there is a risk that Yemen's Houthi rebels could blockade traffic from the Red Sea, which accounts for 12% of total oil supply.
Despite the aggressive rhetoric, some market observers believe Trump may back down, as he has done previously, or declare victory based on other achievements to de-escalate the situation. Advisors are reportedly cautioning against attacking civilian infrastructure, which constitutes a war crime.
The market structure reflects extreme stress, with spot premiums for WTI crude hitting record highs as Asian and European refiners scramble for alternative supplies. This has created a significant gap between spot and futures prices, a condition known as extreme backwardation. Saudi Arabia's Aramco increased the official selling price for its Arab Light crude to Asia to a record premium of $19.50 a barrel.
In response to the supply shock, OPEC+ approved a symbolic increase of 206,000 barrels per day to production quotas for May. However, analysts note this boost is largely notional, as major producers like Iraq, Kuwait, Saudi Arabia, and the UAE cannot increase exports while the Strait of Hormuz remains closed. The alliance warned that damage to Middle Eastern energy infrastructure will have a sustained, long-term impact on global supply.
Traders on prediction markets like Polymarket are betting on further price increases, with some estimating WTI could jump to $120. Technical analysis also points to a bullish near-term outlook, with oil prices maintaining positions above key moving averages and exhibiting bullish chart patterns.
