Brent tops $81 as Strait of Hormuz tensions choke supply routes; European gas prices spike over 20 per cent amid widening West Asia conflict
Global energy markets convulsed as the deepening conflict between the US, Israel and Iran escalated into a broader regional confrontation, sending crude prices to their highest levels in over a year and triggering a sharp spike in European natural gas.
Brent crude futures surged $3.66, or 4.7 per cent, to settle at $81.40 a barrel — the highest closing level since January 2025. US West Texas Intermediate climbed $3.33, or 4.7 per cent, to $74.56, its strongest settlement since June. Brent has now rallied 12 per cent since hostilities began over the weekend.
The price spike followed intensified US and Israeli strikes on Iranian targets and retaliatory attacks by Tehran, including threats to energy infrastructure and commercial shipping in the Gulf. The widening theatre of conflict has reignited fears of prolonged supply disruptions from a region that accounts for a significant share of global oil and liquefied natural gas (LNG) flows.
Strait of Hormuz in focus
The crisis has centred on the strategically vital Strait of Hormuz, a narrow waterway through which roughly a fifth of the world’s oil and LNG shipments transit.
Iranian media reported that Tehran would fire on any vessel attempting to pass through the strait, prompting insurers to withdraw coverage for ships operating in the area. Tankers and container vessels have since begun rerouting, while freight and insurance costs have surged.
Iraq — OPEC’s second-largest producer after Saudi Arabia — has cut output by nearly 1.5 million barrels per day, citing export bottlenecks and storage constraints. Analysts warn the curbs could deepen if the impasse persists.
Saudi Arabia is also scrambling to shield exports. State oil giant Saudi Aramco is reportedly redirecting some crude shipments via the Red Sea to bypass the Hormuz chokepoint, even as regional refineries and gas fields scale back operations.
Qatar temporarily halted LNG production, sending European gas markets into overdrive. Benchmark Dutch contracts and British gas prices jumped more than 20 per cent intraday, while Asian LNG spot rates also rose sharply. Israel suspended output at select offshore gas fields, and Saudi Arabia shuttered its largest refinery as a precautionary measure.
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Trump signals prolonged campaign
US President Donald Trump said American and Israeli air operations could last four to five weeks, though he suggested Iran’s military capabilities had been significantly degraded.
While his remarks briefly trimmed oil’s intraday gains — Brent had earlier touched $85.12, its highest since July 2024 — traders remained wary of further escalation.
“Iran’s retaliation has been broader than its previous, mostly symbolic measures, and its approach has resulted in several regional flashpoints posing real risk to supply,” analysts at Standard Chartered said in a note.
Fuel prices surge; refiners gain
The ripple effects were swift across fuel markets. US diesel futures jumped about 10 per cent to their highest since October 2023, while gasoline futures climbed nearly 4 per cent to $2.46 a gallon, the strongest level since July 2024. Refining margins, measured by crack spreads, soared to multi-year highs as traders priced in tighter product availability.
The premium of Brent over WTI widened to nearly $8 a barrel — its largest since November 2022 — potentially incentivising higher US crude exports.
Asia seeks alternatives
Energy-importing nations moved quickly to secure alternative supplies. India and Indonesia said they were exploring diversified sourcing strategies, while some Chinese refiners reportedly advanced maintenance shutdowns amid feedstock uncertainty.
For India, which imports over 85 per cent of its crude requirements, sustained oil above $80 per barrel could widen the current account deficit and complicate inflation management, especially if freight and insurance premiums remain elevated.
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Inventory data tempers rally
Limiting further gains were signs of rising US inventories. Data from the American Petroleum Institute showed crude stocks increased by 5.6 million barrels last week, well above expectations of a 2.3 million-barrel build. Official figures from the Energy Information Administration are due later on Wednesday.
Yet traders say the supply data may offer only temporary relief if the geopolitical crisis persists.
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