Crude Oil Breaches $100 as Iran War Exposes Energy System Fragility

Brent crude closed above $100 per barrel on 12 March for the first time since August 2022, as Al Jazeera reports Iran’s new supreme leader pledged to maintain the effective closure of the Strait of Hormuz—a waterway that normally transports one-fifth of global oil supplies. International benchmark Brent crude gained 9.22%, or $8.48, to close at $100.46 per barrel, the first time Brent closed above $100 since August 2022. U.S. West Texas Intermediate futures rose 9.72%, or $8.48, to settle at $95.73. The 13 March closure punctuates a relentless two-week climb: oil prices have surged approximately 40% since U.S.-Israeli strikes on Iran began 28 February, according to Al Jazeera.

Largest Supply Disruption on Record

The Mideast war is creating the largest supply disruption in the history of the global oil market, as Iran’s chokehold on regional supplies forces Gulf producers to slash production, the International Energy Agency said Thursday. Per IEA, crude production was currently down by at least 8.0 million bpd, with an additional 2.0 million related to petroleum products including condensates shut off. About 20% of global supply has been disrupted for nine days, more than double the previous record set during the Suez crisis of 1956. According to CNBC, the disruption triggered by the closure of the Strait is nearly three times the size of the shock caused by the Arab oil embargo of 1973.

No more than five ships have passed through the waterway each day since the US and Israel launched joint strikes on Iran on February 28, compared with an average of 138 daily transits before the war. Iraq, Kuwait, the UAE, and Saudi Arabia recorded the largest supply declines, data from The Star shows. The big difference between the supply shock of the Iran war and past crises is the world has no spare oil capacity to address the problem. Saudi Arabia and the United Arab Emirates hold the overwhelming majority of swing capacity but they have been cut off from the global oil market by the Hormuz closure.

Emergency Measures Fail to Contain Prices

The International Energy Agency’s announcement on Wednesday that member countries would release 400 million barrels of oil from emergency stockpiles drew a tepid response among traders eyeing a daily shortfall in global supplies estimated at 15-20 million barrels. The U.S. announced it would release 172 million barrels from its Strategic Petroleum Reserve as part of that effort, per CNBC. It will take 120 days for the U.S. to complete the release of its barrels, Energy Secretary Wright said. Traders are now doing the math and realize that IEA drawdowns can at best only offset a fraction of the roughly 15 million barrels per day net supply loss of crude and refined products due to ongoing halt to most tanker transits of the Strait of Hormuz.

The US Department of the Treasury’s issuance on Thursday of a temporary licence authorising countries to purchase sanctioned Russian oil that has been stranded at sea also failed to move the market, with Brent crude staying above $100 a barrel after the Treasury announcement. According to Irish Times, the United States has issued a 30-day waiver for countries to buy sanctioned Russian oil and petroleum products currently stranded at sea. US treasury secretary Scott Bessent said the move, announced on Thursday, was a step to stabilise global energy markets roiled by the Iran war. There were about 124 million barrels of Russian-origin oil on water across 30 different locations globally as of Thursday, Fox News reported, adding that the US licence would provide around five to six days of supply when taking into account the daily loss of oil from the Strait.

Europe Objects, Russia Presses Advantage

European Union leaders called out President Donald Trump’s decision to lift sanctions on Russian oil as fueling the war machine against Ukraine, as Washington tries to ease energy prices after a second week of conflict in the Middle East. António Costa, President of the European Council, said the unilateral decision by the US to lift sanctions on Russian oil exports is very concerning, as it impacts European security. European Commission president Ursula von der Leyen, after participating in a call with G7 leaders on Wednesday to discuss the impact of the Iran war on oil and gas markets, said now was not the time to relax sanctions against Russia.

Moscow pressed its advantage. Russia’s economic envoy Kirill Dmitriev said today that it was increasingly inevitable that Washington would lift more sanctions. The United States is effectively acknowledging the obvious: without Russian oil, the global energy market cannot remain stable. Oil prices soared to almost $120 a barrel this week, the highest price since the pandemic, and every extra $11-per-barrel would bring Russia an extra $28 billion a year, according to the pro-Kremlin Izvestia newspaper.

Inflation Expectations Shift, Fed Calculus Resets

February U.S. consumer price Inflation remained at 2.4% year-over-year, but that data predates the oil surge, US News notes. If a longer conflict that inflicts minor damage to energy infrastructure occurs, CPI inflation would rise to 3.5% by the end of 2026, up from the current 2.4% forecast, Capital Economics estimated. In this case, gasoline prices could rise to just shy of $5 per gallon in the second quarter. Traders in recent days have abandoned hopes of an early summer easing from the central bank, a change in thinking that coincided with the U.S.-Israel attacks on Iran and a burst in oil prices to around $100 a barrel.

Goldman Sachs officially adjusted its rate forecast pushing back the next cut to September from June. However, Goldman’s economists still think the Fed could lower once more before the end of 2026. Because of the spike for oil prices, traders have pushed back forecasts for when the Fed could resume its cuts to interest rates. The central bank meets next week, with expectations it will hold steady until a clearer picture emerges of conflict duration, per US News.

Energy Sector Capital Reallocation Accelerates

The price inflection is reshaping capital allocation across energy markets. The oil & gas industry is experiencing a fundamental transformation in how companies access and deploy capital in 2026. Despite strong balance sheets and robust free cash flow generation, the sector is witnessing strategic shifts in funding sources and investment priorities that signal a new era of capital allocation. We expect U.S. crude oil production will average 13.6 million barrels per day in 2026 and rise to 13.8 million b/d in 2027. Our 2027 forecast is 0.5 million b/d higher than last month’s forecast.

LNG markets face divergent pressure. Dutch Title Transfer Facility futures, Europe’s benchmark gas contract, rose 35% on Tuesday to more than 60 euros per megawatt-hour. On the week, prices are around 76% higher. Yet U.S. natural gas prices remain relatively unaffected: Although reduced liquefied natural gas flows through the Strait of Hormuz have caused the price of natural gas in Europe and Asia to increase, we expect U.S. natural gas prices to be relatively unaffected by this development. In our forecast, the Henry Hub spot price averages about $3.80 per million British thermal units in 2026, or 13% less than our forecast last month. The disconnect reflects U.S. LNG terminals already operating near maximum capacity before the crisis, limiting arbitrage opportunities.

Dollar Strength and Volatility Premium

Currency markets reflect the energy shock’s macro ripples. The dollar has strengthened against major currencies as investors price in sustained Fed tightness relative to other central banks facing growth headwinds from energy costs. Oil market implied volatility has spiked: while historical data shows the CBOE Crude Oil ETF Volatility Index (OVX) reaching 190 during March 2020, current readings reflect traders pricing 12-18 month elevated risk premiums into futures curves, as CNN reports. Looking forward to contracts for delivery in 2027 and 2028, oil futures are trading in the high $60s, noted Dan Pickering, founder and chief investment officer at Pickering Energy Partners.

Trump Energy Independence Agenda Faces Headwinds

The price surge creates political complications for the Trump administration’s stated energy dominance goals. US President Donald Trump struck a similarly defiant tone on Thursday, posting on Truth Social that stopping Iran from getting nuclear weapons was of far greater interest and importance than rising oil prices. Yet the contradiction is stark: Trump campaigned on $50 oil and energy abundance, while current policy choices—direct military engagement in Iran, coupled with Russian sanctions relief that European allies oppose—have produced the opposite outcome. US gas prices have risen about 50 cents in a week to $3.48 a gallon, higher than at any point in either of President Donald Trump’s terms. Domestic production increases will take months to materialize, and shale breakeven economics require $55-60/bbl, creating limited incentive for emergency drilling acceleration at current forward curve prices.

What to Watch

Three variables will determine whether oil consolidates above $100 or retreats: First, Hormuz transit resumption timing—shipping insurers have refused coverage, and Energy Secretary Chris Wright told CNBC earlier Thursday that the U.S. Navy is not ready to escort tankers through the Strait yet. U.S. military assets in the region are focused on destroying Iran’s offensive capabilities. Second, actual demand destruction thresholds—analysts estimate $120-150 oil would force consumption cuts in developing economies, but advanced economy tolerance remains untested. Third, the durability of Russian sanctions relief—if Europe sustains opposition and the 30-day waiver expires without renewal, the 124 million barrels currently at sea represent one-time supply, not ongoing flow. Near-term, watch whether WTI decisively breaks above $98.11 (the 50% Fibonacci retracement level) and whether March U.S. inflation data confirms the lagged energy price passthrough that models predict. The era of abundant, cheap energy as macroeconomic backdrop is on indefinite hold.