Oil prices surge 4% as U.S.-Iran conflict escalates in Strait of Hormuz

Oil prices surged by 4% on Monday as escalating tensions between the United States and Iran intensified, with both sides exchanging airstrikes and claims over the navigability of the Strait of Hormuz. Brent crude futures climbed to $79 per barrel, while U.S. West Texas Intermediate (WTI) crude reached $74.36, marking the highest levels in over three weeks. The spike reflected renewed fears of supply disruptions in one of the world’s most critical energy chokepoints, where nearly 20% of global oil flows pass daily.

The conflict escalated over the weekend after the U.S. conducted strikes on Iranian military targets, prompting Iran to retaliate by launching missile attacks on U.S. allies in the Gulf region, including Bahrain, Kuwait, Qatar, Jordan, and Oman. Iran also claimed to have closed the Strait of Hormuz to commercial traffic, a move the U.S. denied, asserting that the waterway remained open. The conflicting statements fueled uncertainty, with shipping companies diverting vessels and traffic through the strait slowing to a “trickle,” according to analysts.

Analysts warned that the situation could worsen if the conflict persists. ING’s commodities strategists noted that “the risk is that this escalates to levels seen early in the war, where neighboring countries and their energy infrastructure are also targeted.” The potential for prolonged disruption has already prompted OPEC+ to announce plans to increase oil production by 200,000 barrels per day starting next month, though market participants remain skeptical about its impact.

Asian stock markets fell sharply as investors braced for prolonged volatility. Japan’s Nikkei 225 index dropped 1.9%, while South Korea’s Kospi slid 9%, its lowest level since April. In China, the Shanghai Composite index fell 2.1%, and Hong Kong’s Hang Seng edged higher by 0.2%. The U.S. dollar strengthened against major currencies, with the euro rising to $1.1409 and the yen declining amid concerns over higher energy costs. Gold prices fell over 1%, as investors shifted to safer assets amid inflationary pressures.

The U.S. military’s actions were framed as defensive by officials, following Iran’s alleged attacks on commercial vessels in the Strait of Hormuz. President Donald Trump, however, signaled that the conflict could extend beyond initial expectations, stating that the U.S. would continue strikes “for weeks” if necessary. His remarks, coupled with Iran’s aggressive retaliation, have raised alarms about the potential for broader regional instability. Trump also dismissed the recent ceasefire agreement, calling it “a waste of time,” though he allowed talks to continue.

Energy markets remain highly sensitive to developments, with prices fluctuating based on geopolitical shifts. While oil benchmarks had previously eased after OPEC+ pledged to boost output, the latest escalation reversed those gains. Analysts at JPMorgan Chase emphasized that “the trajectory of oil prices will ultimately depend on four variables: how much supply is disrupted, how long a disruption lasts, whether supply from other sources can be mobilized quickly, and what comes next.”

The crisis has also impacted natural gas markets, with European futures jumping 45% after Qatar’s state energy company paused LNG production due to military attacks. In the U.S., natural gas prices rose 5%, reflecting broader fears of energy supply shocks. Meanwhile, the Federal Reserve and other central banks are closely monitoring inflation, as higher oil prices could pressure them to maintain or raise interest rates, further weighing on global economies.

For energy-importing nations like the Philippines, the surge in crude prices threatens to drive up domestic fuel costs. The country, which relies heavily on oil imports, faces heightened economic pressures as global benchmarks climb. Despite the recent rally, oil prices remain below the $110-per-barrel highs seen earlier in the year, but analysts warn that any prolonged conflict could push them higher.