Key Highlights 

  • Brent crude touched $120/bbl after US-Israel strikes on Iran began 28 February 2026, and crossed $108 on 19 March following Israeli strikes on Iran's South Pars gas field 
  • Strait of Hormuz tanker traffic has nearly halted; Gulf producers have cut output by at least 10 mb/d as onshore storage fills 
  • The IEA authorised the largest emergency reserve release in its history (400 million barrels), yet prices remain elevated as markets doubt it can bridge the supply gap 
  • Global oil supply is projected to fall by 8 mb/d in March, the largest single-month disruption in the history of the oil market, according to the IEA 
  • Insights warn prices could reach $150-$200/bbl if the strait remains closed 

 

A supply shock without modern precedent 

Oil's move above $115 per barrel reflects a supply-side dislocation without modern precedent. The trigger was the joint US-Israeli military campaign against Iran, launched on 28 February 2026, which killed Supreme Leader Ali Khamenei and prompted Iran's Revolutionary Guard to declare the Strait of Hormuz closed to commercial shipping. 

Brent, which closed 2025 at around $61/bbl, surged nearly 80% in the weeks following the outbreak of hostilities, touching $120/bbl on 9 March before settling into the $100-$110 range. This is not a demand-led rally: the IEA has cut its 2026 consumption growth forecast by 210,000 barrels per day, partly reflecting flight cancellations and broader demand destruction at high prices. 

Strait of Hormuz: the structural choke point 

The Strait of Hormuz normally carries roughly 20 million barrels of crude and products daily, about one-fifth of global seaborne supply. Since Iran declared it closed and began attacking commercial vessels (21 confirmed attacks as of 12 March), tanker traffic has effectively halted, with over 150 ships anchored outside to avoid the risk. 

Gulf producers have responded by cutting total output by at least 10 mb/d as onshore storage fills. Alternative routing exists via Saudi Arabia's East-West Pipeline to Yanbu and the UAE's pipeline to Fujairah, but their combined capacity of 3.5-5.5 mb/d is a fraction of normal strait flows. The Red Sea route carries additional risk given ongoing Houthi activity. 

Energy infrastructure becomes a strategic target 

On 18 March, Israeli strikes hit Iran's South Pars gas field, the world's largest natural gas reserve, shared with Qatar. Iran responded by publishing a target list naming Saudi Aramco's Samref refinery and Jubail petrochemical complex, the Al Hosn gas field in the UAE, and the Mesaieed complex in Qatar. Qatar's foreign ministry condemned the strikes as "a dangerous and irresponsible step." 

These assets are capital-intensive and not rapidly replaceable. The shift to upstream gas infrastructure marks a significant escalation from the conflict's early phase, when strikes were focused on Iranian military and nuclear sites. Markets reacted immediately: Brent spiked more than 5% to nearly $110/bbl on the news. 

Inflation returns as a policy constraint 

Higher oil prices feed into inflation through transport, logistics, and industrial input costs. The IMF estimates every 10% rise in oil prices, sustained over a year, adds 0.4 percentage points to global inflation and cuts growth by 0.15 points. With Brent up 80% at its peak, the sustained inflationary impact would be substantial. 

This arrives as the Federal Reserve, ECB, and Bank of England were each navigating cautious easing cycles. A prolonged energy shock does not simply slow those cycles; it may reverse them. The macro setup increasingly resembles stagflation: rising prices alongside weakening growth, the combination hardest for central banks to manage. 

Financial markets shift to risk-off mode 

Equity markets have sold off broadly, with energy-intensive sectors including airlines, logistics, and petrochemicals facing severe margin pressure. Safe-haven flows have moved into Treasuries and gold even as inflation expectations rise, a tension that reflects the stagflationary dynamic at work. 

Asian buyers are worst affected among energy importers: China sources roughly one-third of its oil via the strait, Japan around 70% of its Middle Eastern crude, and South Korea and India face similar dependencies. Dubai crude has already crossed $150/bbl, an all-time high, creating a $50-plus gap versus WTI that reflects acute regional scarcity. 

The IEA's emergency intervention and its limits 

The IEA coordinated the release of 400 million barrels from member-country strategic reserves, the largest emergency action in its 50-year history, with the US contributing 172 million barrels from its SPR over 120 days. 

The market's reaction was telling: prices rose 17% the day of the announcement. ING strategists noted that "the only way to see oil prices trade lower on a sustained basis is by getting oil flowing through the Strait of Hormuz." The IEA itself acknowledged the release can close only up to a quarter of the supply gap. Strategic reserves are a bridge, not a solution. 

The path ahead: volatility, not equilibrium 

Price direction hinges on the pace of Hormuz reopening, the extent of further infrastructure damage, and whether diplomacy produces a ceasefire. President Trump has indicated openness to talks with Iran and sought to build a naval coalition to escort tankers, so far without firm commitments from China, Japan, France, or the UK. Even in a partial de-escalation scenario, a structural risk premium of $15-$20/bbl is likely to persist until Gulf shipping security is credibly restored. Insights warn prices could reach $150-$200/bbl if the strait remains closed. 

Conclusion 

Oil above $115 is the visible symptom of the largest supply disruption in the history of the global oil market. The cause, a US-Israeli war on Iran and the near-total closure of the Strait of Hormuz, is structural, not transient. The IEA's reserve release has provided limited relief. Infrastructure targeting has escalated. Gulf producers are cutting output because they have nowhere to store it. Until tankers move freely through the strait again, elevated prices and elevated uncertainty remain the base case. 

 

FAQs 

Why have oil prices surged above $115 per barrel? 

 The US and Israel launched joint strikes on Iran on 28 February 2026, killing Supreme Leader Khamenei. Iran responded by closing the Strait of Hormuz, triggering the largest oil supply disruption in the history of the global oil market, per the IEA. 

How severe is the Hormuz disruption?  

Traffic has effectively halted. Over 150 vessels anchored outside the strait. Gulf producers have cut output by at least 10 mb/d as storage fills. The IEA projects global supply to fall by 8 mb/d in March alone. 

Has anything been done to address the supply shortfall?  

The IEA released 400 million barrels from strategic reserves across 30-plus member countries. It has had limited impact. Analysts say only reopening the strait will bring sustained price relief. 

What does this mean for inflation and growth?  

The IMF estimates every 10% sustained oil price rise adds 0.4 percentage points to global inflation and shaves 0.15 points from growth. With prices up 80% at peak, the macro impact is significant, potentially reversing central bank easing cycles and dragging on growth through 2026