Global oil markets remained on edge Thursday as prices pulled back from sharp intraday highs but continued to trade firmly higher, reflecting persistent supply concerns following fresh attacks on critical energy infrastructure across the Middle East.
Brent crude, the international benchmark, rose as much as 10.9 per cent to an intraday high of $119.11 per barrel before easing to $109.79;still up 2.3 per cent and marking its strongest level since mid-2022. U.S. West Texas Intermediate (WTI) crude followed a similar trajectory, rising to a peak of $100.44 per barrel before settling at $97.25, up 1.9 per cent on the day.
The volatile price action reflects a market increasingly dominated by geopolitical risk, as escalating tensions involving Donald Trump’s administration, Israel, and Iran threaten to disrupt one of the world’s most critical energy-producing regions.
The latest increase was triggered by retaliatory strikes from Iran targeting key oil and gas facilities in Qatar, the United Arab Emirates, and Saudi Arabia. The attacks followed earlier airstrikes on Iran’s South Pars gas field, the country’s share of the world’s largest natural gas reserve, marking a dangerous escalation in a conflict that has rapidly expanded beyond isolated engagements into a broader regional confrontation.
Market participants are now facing the possibility of sustained damage to vital energy infrastructure, particularly as Tehran has also restricted access through the Strait of Hormuz, a strategic maritime chokepoint responsible for the transit of nearly a fifth of global oil supply. Any prolonged disruption in this corridor could have immediate and far-reaching consequences for global energy markets.
Adding to the uncertainty are reports that the U.S. is considering deploying thousands of troops to the Middle East, with a potential mandate to secure oil tanker routes through the Strait of Hormuz. Additional deliberations reportedly include the possibility of sending forces to Iran’s Kharg Island, a key oil export hub that has already been targeted in recent military operations.
The intensifying conflict has raised fears of a broader supply shock, even as oil markets attempt to recalibrate following earlier gains. Analysts note that while prices have moderated from their session peaks, the underlying risk premium remains firmly embedded.
“The future of the global oil market will ultimately be dictated by the length of the conflict. The longer the conflict persists, the more volatile oil prices become, and the greater the likelihood of a prolonged global economic downturn,” said Yerbol Orynbayev, a former World Bank governor.
According to Orynbayev, the current trajectory suggests that expectations of a short-lived disruption may be overly optimistic. “Recent strikes on critical energy infrastructure and continued restrictions in the Strait of Hormuz indicate that the conflict is far from over,” he said, adding that oil’s climb toward the $120 per barrel mark reflects both immediate supply concerns and longer-term uncertainty.
Beyond the physical disruption of supply, the unfolding crisis is also reverberating across global monetary policy frameworks. Central banks are increasingly being forced to reassess their outlooks in light of rising energy prices and the potential inflationary pressures they may unleash.
At the Federal Reserve, policymakers have signalled caution, acknowledging that the economic implications of the oil shock remain highly uncertain. Chair Jerome Powell noted that while higher energy prices are likely to push up inflation in the near term, the broader impact on growth and financial conditions is still unclear.
Similarly, the Bank of England warned that rising energy and commodity prices would feed through to household fuel and utility costs, while also increasing operational expenses for businesses. The bank highlighted the risk of second-round inflationary effects, particularly if elevated energy prices persist.
The European Central Bank echoed these concerns, stating that the Middle East conflict has significantly heightened uncertainty in the economic outlook. The ECB flagged upside risks to inflation alongside potential downside risks to growth, reflecting the dual challenge now confronting policymakers.
Despite a strengthening U.S. dollar, oil markets have continued to advance, indicating that geopolitical dynamics are currently outweighing traditional macroeconomic factors.
For global markets, the implications are profound. Elevated oil prices not only threaten to stoke inflation but also risk dampening economic activity by increasing input costs across industries. Energy-intensive sectors, in particular, may face margin pressures, while consumers could see reduced purchasing power as fuel and transportation costs rise.
Emerging markets, especially those heavily reliant on imported energy, are likely to bear the brunt of these developments. Higher crude prices can exacerbate trade imbalances, weaken currencies, and strain fiscal positions, particularly in economies where fuel subsidies remain significant.
At the same time, the situation presents a complex dynamic for oil-exporting nations, which may benefit from higher prices but face operational challenges if regional instability disrupts production or export logistics.
Looking ahead, analysts caution that oil markets are likely to remain highly sensitive to developments on the ground. The interplay between military actions, diplomatic efforts, and policy responses will be critical in shaping price trajectories in the weeks ahead.
While some market participants had initially hoped that strategic petroleum reserve releases and alternative supply routes could mitigate the impact of disruptions, the scale and intensity of the current conflict suggest that such measures may offer only limited relief.
