Oil prices soared to a four-year peak on Thursday before retreating, as fears over the intensifying US-Iran war rattled global energy markets and fueled concerns over disruption in the Strait of Hormuz. Brent crude, the global oil benchmark, briefly climbed to $126.41 a barrel overnight, its highest level in four years, before easing back to $115.8 as market activity slowed. Meanwhile, WTI crude fell 0.7% to $106 a barrel. Even after the decline, Brent remains significantly above its pre-war level of $73 a barrel and has nearly doubled since the start of the year, when tensions between Washington and Tehran began escalating. The surge in crude prices is already feeding through to consumers. Across the US, average gasoline prices rose to $4.30 a gallon on Thursday, marking the highest national average in four years, according to AAA. Market anxiety has intensified as traders weigh the consequences of the Strait of Hormuz remaining effectively closed. The strategic waterway ordinarily handles about 20% of the world’s oil and natural gas flows, making any prolonged shutdown a major threat to global supply chains. Economic warnings are growing louder. Analysts cited by CNN say that an extended interruption to oil flows into the second half of the year could tip the global economy into recession, with multiple countries already facing fuel shortages, inflationary pressure and weakening household demand. The ripple effects are being felt far beyond petrol stations. Petroleum-linked materials such as plastics, synthetic rubber and textiles are becoming more expensive, while food costs are also rising. In Asia, where economies are heavily dependent on imported energy and large-scale manufacturing, shortages are already squeezing supplies of medical gloves, cosmetics and instant noodles. Vandana Hari, founder of Vanda Insights, said that oil prices have “nowhere to go but up,” until the permanent reopening of the strait comes into view. “As of now, how and when that might happen is anybody’s guess,” she added. Part of Thursday’s sharp price movement was also linked to futures market mechanics. Neil Wilson, strategist at Saxo, said the expiry of the heavily tracked June futures contract had shifted trading into July contracts, which were priced above $110 a barrel. Adding to the volatility, Deutsche Bank analysts said the “main catalyst” behind the overnight rally was an Axios report that the US may be preparing “short and powerful” strikes on Iran, CNN reported. Oil has now climbed for eight straight sessions as diplomatic efforts between the United States and Iran have stalled, reducing hopes for a near-term end to the conflict. “The oil market has moved from… hoping for resolution to fixating squarely on the physical scarcity and long-term threat to supply with the possible escalation of conflict now looming,” Wilson wrote in a note. Shipping data has highlighted the scale of the crisis. Daily oil tanker movements through the Strait of Hormuz have collapsed to single digits since the war began in late February, prompting the International Energy Agency to describe the disruption as the “largest supply disruption in history.” Janiv Shah, vice president of oil markets at Rystad Energy, said any further military escalation could trigger even steeper price gains. “Further escalation and any attacks on energy infrastructure could force (oil price) benchmarks to gain rapidly,” Shah said. He also warned that sustained price pressure may deepen signs of weakening global oil demand already emerging in the market.
