Escalation of Conflict in the Middle East Drives Oil Prices Above $110; Supply Concerns Continue to Intensify

March 9th News

As the U.S. and Israel continue to escalate their strikes against Iran, the global crude oil market has plunged into violent turmoil, triggering an epic surge in international oil prices. Market concerns about energy supply shortages are steadily intensifying, while various energy-related futures contracts are simultaneously experiencing volatile swings, posing a significant impact on the industry landscape.

Oil prices soar to new highs in recent years, with multiple varieties strengthening simultaneously in China.

This round of oil price surge began around March 1st when the United States and Israel launched attacks on Iran. In response, Iran took countermeasures to block oil tankers from passing through the Strait of Hormuz, directly triggering panic in the global crude oil market. On March 6th (Friday), NYMEX crude oil futures led the way with a sharp increase, with the actively traded April crude oil contract rising by $9.89, a price increase of 12.21%, settling at $90.90 per barrel. For the week, it rose by $23.88, a price increase of 35.63%. The May Brent crude oil futures contract increased by $7.28, a price increase of 8.52%, settling at $92.69 per barrel, marking the sixth consecutive day of gains, with a weekly price increase of 27.2%. The WTI-Brent spread narrowed, mainly due to excessive market concerns about future supply, as refiners and traders sought alternative crude sources. As the largest oil producer, the U.S. aimed to avoid a rapid depletion of inventories due to excessive exports, causing the spread to return to transportation cost levels. In addition to crude oil, refined product futures also strengthened, with the April RBOB gasoline futures contract rising by 7.57 cents, settling at $2.7466 per gallon, and the April heating oil futures contract increasing by 0.81 cents, settling at $3.6224 per gallon, further reflecting market concerns about energy supply.

On Monday, March 9, as Asian trading opened, oil prices continued their upward surge, with WTI once soaring by 22.4% to reach $111.24 per barrel—a level not seen since July 2022. Thus, this benchmark contract has kept gaining momentum following Friday’s 12% rise, accumulating a whopping 36% increase over the past week, setting a recent record for price growth.

Middle East Conflict Escalates, Supply Bottlenecks Continue to Worsen

The core driver behind the sharp surge in oil prices is the ongoing escalation of tensions in the Middle East. According to Israel, early on Sunday, March 8, Iranian commanders were targeted in an attack in Beirut, the capital of Lebanon, expanding the scope of operations into downtown Beirut. In the days leading up to this incident, previous attacks had already claimed nearly 400 lives. Meanwhile, Iranian media reports indicate that Iran has announced Mojtaba Khamenei, the son of the late Supreme Leader Ayatollah Sayyed Ali Khamenei, as the new Supreme Leader, further complicating the regional situation.

The escalating conflict is directly hitting the Strait of Hormuz—the global energy supply’s critical chokepoint. As a strategic gateway connecting the Persian Gulf and the Gulf of Oman, this waterway accounts for roughly 20% of the world’s daily oil demand. Major oil-producing countries such as Saudi Arabia, Iraq, Qatar, and the United Arab Emirates are highly dependent on this strait for their crude oil exports; in particular, nearly all of Qatar’s liquefied natural gas is shipped through the Strait, representing about 20% of the global supply. Since Iran announced a ban on ships passing through, the strait has effectively been closed for seven days, leaving approximately 140 million barrels of crude oil—equivalent to 1.4 days’ global demand—unable to reach the market. Hundreds of oil tankers are stranded near the strait, and the disruption to shipping is becoming increasingly severe. To ease supply pressures, Saudi Arabia—the world’s largest oil exporter—is increasing oil shipments via the Red Sea. However, the scale of these shipments falls far short of making up for the export shortfall caused by the closure of the Strait of Hormuz. Saudi Aramco has already notified some buyers to load their cargoes at the Yanbu port on the Red Sea. Asian fuel oil traders have also been forced to seek alternative sources from the West, in response to the difficulties posed by the disrupted transportation from key Middle Eastern suppliers.

Moreover, the conflict has spread to key energy-producing regions in the Middle East, disrupting local production and forcing refineries and liquefied natural gas (LNG) plants to halt operations. Notably, on the evening of March 7, Iranian oil storage facilities were attacked, directly undermining the country’s capacity to store and transport oil. Although Iran has stated that it can rely on strategic reserves and alternative supply routes to ensure a continuous fuel supply, the damage to these facilities has nonetheless further intensified global energy supply tensions. Qatar’s Minister of State for Energy Affairs, Saad Al-Kaabi, revealed that Qatar has already suspended LNG production. Even if the conflict were to end immediately, it would still take weeks to months to restore supply levels to normal—further exacerbating global energy supply pressures.

Institutional Warning: Oil Prices May Further Break Through, Uncertainty in Prospects Increases

As regional conflicts continue to escalate, numerous institutions and industry insiders have issued strong warnings about the future trend of oil prices. On March 6, Qatar’s Energy Minister stated that all Gulf energy-producing countries are expected to halt exports within a few weeks, a move that could push oil prices as high as $150 per barrel. A report by J.P. Morgan also pointed out that once the Strait of Hormuz is completely closed, the seven major oil-producing countries in the Middle East will have storage capacity sufficient for only 25 days, after which they will be forced to shut down production entirely.

If the Middle East conflict continues for several more weeks, Brent crude oil prices could test $120 per barrel. Some institutions even predict that, given the current circumstances, oil prices could surge to as high as $150—a sign that current fundamentals are stronger and the risks are greater than during the Russia-Ukraine conflict, when oil prices had previously reached this level.

Industry insiders say that even if this week-long conflict ends quickly, global consumers and businesses could still face weeks or even months of rising fuel prices, as suppliers are grappling with damaged facilities, disrupted logistics, and heightened shipping risks. It will take a long time for supply chains to fully recover.

U.S. Oil and Gas Rig Count Rises for First Time in Four Weeks, Potentially Alleviating Long-Term Supply Pressure

Against the backdrop of soaring oil prices, U.S. energy companies have begun adjusting their production strategies. According to a report released on March 6 by U.S. energy services company Baker Hughes, this week the number of oil drilling rigs increased by four to 411, reaching its highest level since early February; meanwhile, the number of natural gas drilling rigs decreased by two to 132, marking the lowest level since early February. The increase in the number of drilling rigs may indicate that the U.S. will gradually boost its crude oil production, potentially easing global energy supply tensions over the long term. However, in the short term, it will be difficult for the U.S. to close the supply gap caused by the conflict in the Middle East.

Overall, the core contradiction in the current global crude oil market is centered on the supply uncertainties caused by the war in the Middle East. The passage conditions of the Strait of Hormuz and the duration of the conflict will be the key factors determining the trend of oil prices. If the conflict escalates further, oil prices may see a more significant increase, which in turn will have a broad and profound impact on the global economy and industrial chains.

Future Outlook:

Crude oil analysts believe that, in the short term, oil prices will likely remain volatile at high levels, influenced by the combined effects of the Middle East conflict, disruptions to shipping through the Strait of Hormuz, and attacks on Iran’s oil storage facilities—raising the possibility that prices could even break above $120 per barrel. In the medium term, if the conflict eases, shipping resumes, and Iran’s oil storage facilities are gradually repaired, oil prices will gradually return to fundamentals driven by supply and demand. OPEC’s plan to increase production and the rising number of U.S. drilling rigs could help ease supply pressures. As for the long-term trend, it will depend on how geopolitical developments unfold, the pace of growth in alternative energy sources, and the recovery of the global economy.