The Surge
Brent crude futures jumped more than 7% to almost $120 a barrel on Wednesday, the highest level since June 2022, as the US–Iran standoff shows no signs of resolution and the Strait of Hormuz remains effectively closed. WTI wasn’t far behind, surging more than 6% to above $106 per barrel. Both benchmarks are now up over 97% since January. The price increase during the quarter was the largest on an inflation-adjusted basis in data going back to 1988, according to the EIA. “Markets are not overreacting; the physical supply picture is genuinely that bad.”
What’s Driving It
The Strait of Hormuz, through which about 25% of the world’s seaborne oil trade and 20% of the world’s LNG passed in peacetime, has seen tanker traffic fall to near zero. The IEA has called it the largest supply shock on record. Since April 13, the US has blockaded Iranian ports, creating what analysts are calling a “dual blockade,” with both sides effectively sealing off the Gulf.
US inventory data released Wednesday showed sharp drawdowns in crude and fuel stockpiles, while exports surged to record highs above 6 million barrels per day, tightening an already strained market. Distillate crack spreads at New York Harbor averaged $1.42 per gallon in March, the highest monthly level since 2022 and more than double the five-year average. Jet fuel and diesel have taken the worst of it. North American jet fuel is up 95% since the war began, pushing multiple airlines to impose baggage surcharges.
The OPEC Wildcard
Then came the UAE bombshell. The United Arab Emirates announced it will exit OPEC on May 1, a shock decision coming after weeks of missile and drone attacks by fellow OPEC member Iran, with Tehran’s blockade of the Strait of Hormuz severely constraining the UAE’s oil exports. The UAE was second only to Saudi Arabia in spare production capacity, a crucial tool used to influence the market. Analysts at Rystad Energy said OPEC will now become “structurally weaker.”
The immediate price impact is limited, though. Close to 2 million barrels per day of UAE offshore production is already shut in due to the Hormuz closure, and even a return to pre-conflict output levels could take up to six months once transit resumes. Kazakhstan and Nigeria have been flagged by Kpler’s Matt Smith as potential candidates to follow the UAE out of the cartel, which would further erode what’s left of coordinated supply management.
The Angle Markets Haven’t Fully Priced
Here’s what stood out. Kpler data suggests Iran could run out of crude storage capacity at Kharg Island within 12 to 22 days if the US blockade persists, which would force Tehran to begin cutting its own production. Kpler’s Muyu Xu told Al Jazeera that production cuts are likely to be gradual this week but could accelerate sharply into May. Oddly, a supply disruption from the very country causing this crisis could become an additional bullish catalyst that energy desks haven’t modelled yet.
Over 30% of global urea, widely used in fertiliser and produced from natural gas, is exported from Gulf countries through the Strait. Food inflation is the slow-burn story buried under the crude price headlines, and most commodity analysts aren’t covering it yet.
What It Means for Investors
Energy ETFs are emerging as a solid bet for outsized gains, with equities set to outperform amid sustained high oil prices driven by structural supply constraints and failed peace negotiations. ExxonMobil and Occidental Petroleum have been flagged as direct beneficiaries given their existing operational footprint in the UAE through ADNOC partnerships. The ECB has warned that a prolonged conflict will likely trigger stagflation and push major energy-dependent economies, including Germany and Italy, into technical recession by end-2026.
Also Read: Crude Oil Option Chain (MCX)
FAQ
How long can Iran sustain this standoff financially?
Former Congressional Research Service Iran analyst Kenneth Katzman estimates Tehran has between 160 and 170 million barrels of oil “afloat” on tankers globally, enough to sustain revenue flows until August, even under the current US blockade.
Could prices actually hit $200?
US government officials and Wall Street analysts are beginning to consider the prospect that oil prices might surge to an unprecedented $200 a barrel if the strait remains closed into a second month. It’s a tail risk, not a base case, but it’s no longer being dismissed.
What’s the next market trigger to watch?
Mediators in Pakistan expect to receive a revised peace proposal from Iran on Friday. Any credible signal of Hormuz reopening would likely trigger a sharp pullback in crude. Failure to deliver, and Brent could be looking at $125 before the week is out.
