Global oil prices have surged above $110 (£82.74) per barrel while global stock markets declined sharply, as the escalating war involving the United States and Israel against Iran raised fears of prolonged disruptions to oil shipments through the Strait of Hormuz.
In a significant political development on Sunday, Iran announced that Mojtaba Khamenei will succeed his father Ali Khamenei as the country’s Supreme Leader. The announcement signals that hardline leadership continues to hold power in Iran one week into the conflict.
Over the weekend, the United States and Israel launched new waves of airstrikes across Iran, targeting several locations including oil depots. The strikes have heightened concerns that energy supplies from the region could face serious disruption, potentially driving up costs for consumers and businesses worldwide.
Oil markets reacted immediately. On Monday morning in Asian trading, Brent crude rose nearly 24% to $114.74 per barrel, while Nymex light sweet crude climbed more than 26% to $114.78.
Stock markets across the Asia-Pacific region also experienced steep losses. Japan’s Nikkei 225 dropped by more than 7%, Hong Kong’s Hang Seng Index declined by over 3%, and Australia’s S&P/ASX 200 fell by more than 4%.
South Korea’s Kospi index suffered the sharpest fall, dropping by more than 8%, which triggered a 20-minute suspension of trading. The halt was activated through a market safeguard known as a circuit breaker, a mechanism designed to prevent panic selling. The same measure had also been triggered the previous Wednesday when the Kospi fell by 12%.
Approximately one-fifth of the world’s oil supply normally passes through the Strait of Hormuz. However, shipping traffic through the narrow waterway has almost completely halted since the conflict began a week ago.
Many market analysts had predicted that oil prices would surpass the $100 per barrel mark this week. Instead, prices surged far more rapidly than expected—jumping by 10% within about a minute and rising by an additional 10% within the next 15 minutes during early Asian trading.
Last week, markets appeared relatively calm despite the risk of millions of barrels of crude oil and liquefied natural gas becoming stranded in the Gulf if tankers were unable or unwilling to pass through the Strait of Hormuz. However, the latest escalation in the conflict over the weekend, along with visible destruction of energy infrastructure in Iran and across the Gulf, triggered a sharp market reaction.
Analysts are now questioning how far the situation could escalate. Some warn that if the shutdown of the strait continues until the end of March, oil prices could climb to record levels above $150 per barrel.
Adnan Mazarei from the Peterson Institute for International Economics said the surge in oil prices was not surprising, given that production has already halted in some Gulf countries and the conflict shows signs of continuing.
“People are realising that this won’t end quickly,” he said, adding that assurances and objectives outlined by the United States are “becoming more unrealistic.”
Higher oil prices are also expected to increase the cost of several key derivative products, including jet fuel and critical components used in fertiliser production.
Energy supplies from the Gulf are primarily consumed in Asian markets. However, there are already signs of shifting demand, with Asian buyers bidding up prices for U.S. gas supplies. Some tankers that were initially bound for Europe have reportedly turned back in the mid-Atlantic to redirect cargoes.
Responding to the surge in oil prices, Donald Trump, President of the United States, said the short-term rise in energy costs was a “small price to pay” for eliminating Iran’s nuclear threat.
Meanwhile, the U.S. energy secretary told American broadcasters on Sunday that Israel—not the United States—was responsible for targeting Iran’s energy infrastructure, amid growing concern over rising fuel prices for domestic consumers caused by the ongoing conflict.
