Brent crude oil held above $108 per barrel this week, consolidating near the highest levels since 2022 as the Strait of Hormuz -- the world's most critical oil chokepoint -- remains effectively closed due to the ongoing U.S.-Iran military conflict. Prices have surged approximately $44 from pre-war levels in the mid-$60s, making the Hormuz closure the most significant supply disruption since the 1973 Arab oil embargo.
Energy analysts at IHS Markit expect Brent to average $110 per barrel in the second quarter, with downside risk primarily tied to a potential ceasefire deal and upside risk from any escalation. The closure has removed approximately 17-20 million barrels per day of transit capacity, forcing alternative routing through the Suez Canal and around the Cape of Good Hope, adding 15-20 days and significant cost to tanker journeys.
What happened
The Strait of Hormuz, through which roughly 20% of global oil supply and 25% of liquefied natural gas flows transit daily, has been mined and militarily contested since the conflict began in early March. Iranian naval forces deployed sea mines and anti-ship missiles, while U.S. naval operations have been focused on establishing safe passage corridors. Despite these efforts, commercial tanker traffic has been reduced to a fraction of normal volumes.
The supply disruption has been partially offset by Saudi Arabia increasing production by 500,000 barrels per day from its spare capacity, and strategic petroleum reserve releases from the U.S., Japan, and IEA member nations totaling approximately 2 million barrels per day. However, these measures have been insufficient to fully compensate for the Hormuz bottleneck, keeping prices elevated.
Why it matters
Oil above $100 per barrel is the single most inflationary force in the global economy. It feeds directly into gasoline prices (up 28.4% year over year in the U.S.), transportation costs, agricultural input costs, and manufacturing expenses. The PPI surge of 1.4% in April was largely driven by energy pass-through, and CPI at 3.8% has kept the Federal Reserve from cutting rates. Every central bank in the world is grappling with an energy shock it cannot control.
The duration of the closure is the key variable. Markets had initially priced in a 30-60 day disruption, but at 84 days and counting, the conflict has exceeded expectations. If the Iran deal announced by Trump materializes, oil could plunge $30-$40 per barrel. If negotiations fail and the conflict escalates, $130 or higher is plausible.