Brent crude surges past $125 on fears of wider Iran war

Brent crude oil surged past $125 a barrel for the first time since 2022 as the escalating war between the US, Israel, and Iran stoked fears of a wider conflict that could threaten two of the world’s most critical energy chokepoints.

"The market is reacting to the clear and present danger of a supply shock," said a senior commodity strategist at S&P Global. "The risk of Iran closing the Strait of Hormuz or disrupting the Bab el-Mandeb strait is being priced in, and that creates significant upside volatility for crude."

The international oil benchmark jumped more than 5 percent, while West Texas Intermediate crude climbed over 6 percent to trade above $106 a barrel. The surge rippled through equity markets, with supermajors Shell PLC and BP PLC rising 0.9 percent and 0.5 percent, respectively, in London trading.

The rally reflects growing concern that the conflict, which the Pentagon estimates has cost $25 billion so far, could enter a new phase. With diplomatic talks stalled, traders are weighing the potential for a prolonged US pressure campaign that could further restrict Iranian supply and endanger the 30 percent of global oil that passes through the Strait of Hormuz daily.

The conflict's expansion now threatens the Bab el-Mandeb strait, a key route for oil heading to Europe. An Iranian lawmaker renewed threats that Tehran could ask its Houthi allies in Yemen to disrupt the chokepoint if the US continues to intercept Iranian vessels. Such a move would compound the pressure on global supply chains and add fuel to inflationary pressures worldwide.

The last time oil prices sustained these levels was in the initial stages of the 2022 energy crisis, which contributed to a global slowdown in economic growth. The current geopolitical tensions create a risk-off environment for the broader market, even as energy-related stocks see near-term gains from the higher prices. All eyes are on the next moves from Washington and Tehran, with energy markets on a knife's edge.

This article is for informational purposes only and does not constitute investment advice.