For the first time since the invasion of Ukraine, oil prices surged past the $100 psychological threshold on Monday, sparking memories of previous global energy shocks. The price of Brent crude reached $119.50 before a late-day collapse brought it back to $85. This extreme volatility reflects the intense anxiety surrounding the US-Israeli strikes on Iran and the resulting maritime blockade.
The morning’s sell-off was driven by reports of “apocalyptic” damage to Tehran’s infrastructure and the subsequent closure of the Strait of Hormuz. With the IRGC threatening to burn any tankers in the area, the shipping industry has effectively ground to a halt. This disruption has created a massive daily deficit that has already wiped out a year’s worth of stock market gains for several European indices.
However, the afternoon brought a sharp reversal as President Trump characterized the military phase of the conflict as being near its end. This statement, coupled with a 230-point jump for the Dow, suggests that Wall Street is betting on a rapid recovery. Trump has consistently maintained that the high prices are a “very small price to pay” for the elimination of regional nuclear threats.
Despite the optimism in New York, the physical reality of the oil market remains grim. Storage facilities in the UAE and Saudi Arabia are nearing capacity because they cannot ship their product through the blocked strait. If the blockade continues, these major producers may be forced to shut down their fields, which could lead to a secondary price spike that is even harder to control.
As the international community looks toward the G7 for a coordinated response, the focus remains on the sustainability of current prices. While $85 per barrel is an improvement over the morning’s peak, it still represents a significant increase from the start of the year. The coming weeks will determine if the “weeks, not months” timeline promised by the US government will hold true.