Oil prices experienced a dramatic swing on Monday, falling more than 25% after a surge late Sunday had sent them to their highest point in four years. The volatility was driven by a series of escalations over the weekend in the ongoing conflict between the United States and Iran, which sent shockwaves through international markets at the start of the week.
Futures for both international and U.S. oil benchmarks had jumped over 25% in overnight trading, briefly pushing prices above $119 per barrel. However, those gains were almost entirely erased by Monday’s market close, with prices settling around $89 and $85 a barrel respectively. The sharp reversal followed comments from the U.S. President, who suggested the conflict could be ending soon, stating the war effort was “very complete, pretty much,” and ahead of schedule.
The initial price spike was fueled by the effective closure of the Strait of Hormuz, a critical waterway for global oil supplies. Roughly a fifth of the world’s seaborne crude, or about 20 million barrels per day, normally passes through this channel. Recent data indicates that approximately 16 million barrels per day have been stranded and cut off from the global market, creating a massive supply disruption.
This blockage has had immediate consequences. Energy infrastructure throughout the Middle East has come under attack, with refineries in Bahrain and Qatar declaring force majeure and a major Saudi Arabian refinery being taken offline. As a result, with no way to export their oil, producers have begun slashing output. Reports indicate Iraq has cut 60% of its production, with Kuwait also initiating shutdowns. Analysts warn that if the strait remains closed, these production cuts could deepen significantly in the coming weeks, potentially pushing crude prices to $150 or higher.
The surge in oil prices has already begun to affect consumers, with the national average for gasoline rising 16% in a single week. In response, the U.S. administration is reportedly considering measures to curb prices, including tapping the nation’s strategic petroleum reserve and easing shipping regulations. While a group of major industrialized nations discussed a coordinated release from their reserves, they ultimately decided to hold off for the time being.
What began as a targeted campaign has since widened into a broader regional conflict. Airports, military bases, and infrastructure across several Middle Eastern nations have been subject to missile and drone strikes. The conflict’s expansion increasingly threatens the energy supply chain, which was already strained to its limits before the latest disruptions.
