Oil prices jump 3% as global markets react to Iran war

Oil prices climbed about 3% on Tuesday as global markets reacted to the Iran conflict, with the Strait ‌of Hormuz largely closed and supply disruptions intensifying concerns across energy markets. Several U.S. allies declined calls to deploy warships to escort tankers through the key waterway.

Brent futures rose $3.07, or 3.1%, reaching $103.28 per barrel by 0734 GMT. U.S. West Texas Intermediate crude added $3.35, or 3.6%, to $96.85.

In the prior session, Brent futures had fallen 2.8%, and West Texas Intermediate (WTI) crude dropped 5.3% after some vessels managed to pass through the critical strait.

Oil prices surge as Strait of Hormuz disruption raises global concerns

The Strait of Hormuz is a vital passage for about 20% of the ⁠world’s oil and liquefied natural gas trade. Ongoing conflict involving the U.S., Israel, and Iran has significantly disrupted traffic, raising concerns about supply shortages, higher energy prices, and inflation.

IG market analyst Tony Sycamore said, “The risks remain stark: It only takes one Iranian militia to fire a missile or plant a mine on a passing tanker to reignite the entire situation.”

Diplomatic tensions affect security measures

Several U.S. allies turned down Donald Trump’s request to send warships to escort shipping through the strait, drawing criticism from the U.S. president, who accused Western partners of ingratitude despite decades of support.

Priyanka Sachdeva, a senior market analyst at Phillip Nova, said oil markets remain focused on the duration of the conflict and the scale of supply disruption at Hormuz.

Supply risks amplified by recent incidents

Oil traders saw prices climb further after a fire broke out at the Fujairah Oil Industry Zone following a drone attack during morning trade in Asia. No injuries were reported.

Middle East crude benchmarks have hit record highs, ranking among the world’s priciest oil worldwide, increasing pressure on global energy markets. Traders attribute the price ⁠spike to a reduced supply available for delivery.

The effective closure of the strait has forced the United Arab Emirates, the Organization of the Petroleum Exporting Countries’ third-largest producer, to cut production by more than half, according to Reuters sources.

Oil prices outlook: forecasts and policy responses

Oil prices could continue to rise, with WTI possibly reaching $124 a barrel, according to OANDA senior market analyst Kelvin Wong.

To ease energy costs, the head of the International Energy Agency ⁠suggested that member countries release additional oil, supplementing the 400 million barrels they have already agreed to draw from strategic reserves.

Oil prices impact spreads beyond crude markets

Refined fuels face sharper price increases

Analysts say the current shock is hitting refined fuels even harder than crude itself with refined products experiencing sharper price jumps due to supply shortages. According to Goldman Sachs, products such as diesel and jet are seeing sharper price increases due to supply constraints.

“Prices have rallied much more for many refined products than for crude,” analysts Yulia Zhestkova Grigsby and Daan Struyven said in a note, according to Bloomberg. They added that shortages of medium-heavy crude are putting production of diesel, jet fuel and fuel oil at risk.

Saul Kavonic, head of energy research at the Sydney-based research firm MST Marquee, noted that mixed signals on the war’s duration are adding to volatility, with markets reacting more to developments on the ground.

Oil prices and global supply shifts

Alternative supply and market limits

India has resumed purchasing Russian oil after temporarily halting imports due to US sanctions on Moscow’s major oil producers. The 30-day waiver runs until early April, but it can be extended by the Trump administration.

“Russian oil can help cushion a short-term supply shock, but its usefulness depends on two uncertain conditions: that Russian barrels remain available and that the discount remains meaningful,” energy expert Tatiana Mitrova, a fellow at Columbia University’s Center on Global Energy Policy, told Al Jazeera.

In theory, the estimated 120-140 million barrels of Russian oil reported to be “on the water” could cover weeks of India’s imports, Mitrova said. However, only a fraction can be redirected quickly due to logistical and refinery constraints.

At the same time, China could compete for the same barrels, narrowing discounts and pushing prices closer to global benchmarks if disruptions continue.

“Russian oil is a useful tactical buffer, but not a durable shield,” she added.

Limits to replacing Middle East supply

Analyst Abhi Rajendran said the current disruption is larger than past shocks, and the volume of oil and gas flowing from the Middle East blocked cannot be quickly replaced.

He added that other major oil and gas exporters, such as the US and Norway, would need months to increase output, and only inventory releases can partially bridge the gap.

Governments respond with energy-saving measures

Countries across Asia are introducing measures to manage shortages as the region absorbs most of the disruption.

Sri Lanka has implemented a QR code-based fuel rationing system limiting weekly purchases, while Bangladesh briefly imposed caps on fuel sales to prevent panic buying before easing them as reserves stabilised.

Governments are also encouraging reduced energy use. Thailand has asked civil servants to cut electricity consumption by limiting air conditioning and adopting lighter office attire.

Remote work and demand reduction

Several countries, including Pakistan and Vietnam, are promoting remote work to reduce fuel demand, while Pakistan has introduced a four-day working week for government employees.

Academic Fengqi You said remote work can reduce oil demand, particularly by cutting commuting, but its overall impact remains limited.

“Work-from-home is useful for short-term crises and long-term energy planning,” he said, adding that it is only one part of a broader energy strategy.

Supply chain pressures and alternative routes

Iraq is exploring alternative routes to transport its crude, including restarting flows from Kirkuk to the Turkish port of Ceyhan.

However, negotiations with Kurdish authorities have stalled, delaying progress. With shipments disrupted and revenues under pressure, the search for alternative logistics highlights the broader strain on global energy supply chains.

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