Price of oil hits $118 after Iranian conflict causes steepest six-year rise for Brent crude
The global economy is facing a profound new shock as oil prices surge beyond $100 a barrel, with analysts warning the disruption from a rapidly escalating Middle East conflict could eclipse the economic damage caused by Russia’s invasion of Ukraine.
In a dramatic start to trading in Asia on March 9, the international benchmark Brent crude jumped more than 25 per cent to peaks of $118 per barrel, its largest single-day gain in six years. The US benchmark, West Texas Intermediate, followed a similar trajectory, reaching near $119.50. This surge marks the first breach of the $100 threshold since the energy crisis of 2022 and has triggered emergency talks among the world’s leading economies.
A Critical Chokepoint Closed
The immediate cause of the price spike is the effective closure of the world’s most important oil transit route. The Strait of Hormuz, a narrow waterway through which approximately one-fifth of the global oil supply and significant volumes of liquefied natural gas typically flow, has seen maritime traffic virtually cease. The blockade is a direct result of the conflict between the US, Israel, and Iran, with Iranian threats and attacks creating a severe logistical bottleneck. Hundreds of vessels are now stranded, shipping costs are soaring, and initial estimates suggest traffic through the strait has fallen by around 70%.
This stranglehold on exports has forced major Gulf producers to slash output as their storage facilities reach capacity. Iraq, the first to act, has seen its production plummet by an estimated 60-70%, from around 4.3 million barrels per day to between 1.3 and 1.8 million—a drop described as the most serious operational threat the country’s oil industry has faced in over two decades.
They have been followed by Kuwait, where the state-run Kuwait Petroleum Corporation has cut production and declared force majeure on shipments, citing Iranian threats. The United Arab Emirates’ Abu Dhabi National Oil Company (ADNOC) is “managing offshore production levels to address storage requirements,” while Saudi Arabia has suspended output at its massive Ras Tanura refinery. Qatar, a major LNG exporter, has halted operations at its export plant.
A Shock “17 Times Larger” Than Ukraine
The scale of the disruption has prompted Wall Street giant Goldman Sachs to issue stark new forecasts. The bank now believes Brent crude could exceed $100 per barrel within days if no resolution emerges, and has warned it could reach $150 by the end of March. In a note to clients, analysts stated the current shock is estimated to be 17 times larger than the impact on oil production following Russia’s invasion of Ukraine in 2022.
Kathleen Brooks, research director at XTB, underscored the severity, noting that Iraq’s production loss alone represents roughly three per cent of global oil supply. “Shockingly, this is worse than the oil supply situation after Russia attacked Ukraine,” she observed.
The conflict itself was triggered by US and Israeli strikes on Iran on February 28, which targeted the country’s leadership, including Supreme Leader Ali Khamenei, and military infrastructure. Iran’s UN representative condemned the action as a “deliberate and unprovoked military attack,” and the nation’s remaining leadership, including the newly appointed hardline Supreme Leader Mojtaba Khamenei, has vowed retaliation. The strikes came after years of failed diplomacy over Iran’s nuclear programme, with the country already in a weakened state from sanctions and internal protests.
Global Scramble and Political Reactions
In response to the mounting crisis, G7 finance ministers are holding an emergency meeting, coordinated by the International Energy Agency (IEA), to discuss a coordinated release of petroleum from strategic reserves. IEA member countries hold approximately 1.2 billion barrels in such reserves. The urgent call, scheduled for 08:30 New York time, aims to formulate a strategy to alleviate the impact of the war on global markets.
US President Donald Trump has sought to downplay the economic turmoil. In a Truth Social post, he described the oil price surge as “a very small price to pay for U.S.A., and World, Safety and Peace,” adding that prices will “drop rapidly when the destruction of the Iran nuclear threat is over.” However, reports suggest he has also expressed frustration with Israeli strikes on Iranian fuel storage, fearing they would deepen global shortages.
The ramifications are being felt far beyond the Gulf. Nations heavily reliant on crude imports, including China, India, South Korea, Japan, Germany, Italy, and Spain, are identified as particularly vulnerable. China, for instance, relies on the Strait of Hormuz for over 80% of its oil and LNG imports from the region, and despite calls to keep the waterway open, Chinese vessels have also ceased transits. The surge threatens to rekindle global inflation and squeeze consumer spending worldwide.
In a related development, Ukraine has agreed to send military personnel with expertise in downing Iranian drones to Gulf states, leveraging experience gained from defending against such attacks. The crisis has also seen the US administration’s previous offer of political risk insurance for tankers transiting the Gulf rendered moot by the effective closure of the strait.
With historical precedents offering little comfort—Brent crude peaked at $145 a barrel in 2008 and exceeded $120 in 2022, both events causing significant global economic pain—the international community now watches to see if diplomatic or military developments can reopen the world’s most critical energy artery before the economic damage becomes entrenched.
