An oil price tidal wave has crashed through global markets as the Iran conflict transforms the energy landscape beyond recognition. Brent crude surged past $90 a barrel this week — reaching $91.89 at its peak — in what represents the single biggest weekly price jump since the onset of the Covid-19 pandemic. Markets are now bracing for what could become a prolonged period of elevated energy costs with wide-ranging economic consequences.
The mechanics driving the surge are as much about storage as they are about supply. Kuwait’s announcement that it was cutting production at fields that had run out of storage capacity illustrated a problem that is about to get much worse. Energy consultants estimate that Saudi Arabia and the UAE — between them responsible for a massive share of global oil output — could face the same storage limitations within 20 days, setting the stage for further output cuts.
The situation is further complicated by events at sea. Iran’s Revolutionary Guard has threatened to attack western tankers attempting to navigate the Strait of Hormuz, the narrow waterway through which roughly one-fifth of global oil and gas flows. Nine vessels have already been struck since hostilities began. The international community’s response has been inadequate, and the Trump administration’s offer of military escorts has done little to restore confidence.
Qatar’s energy minister added the most alarming note of the week, warning that if the conflict continues, all Gulf exporters could halt production within weeks — an outcome that he said would drive oil to $150 a barrel. Qatar’s own LNG infrastructure has already suffered significant drone-strike damage, and the country, which accounts for about 20% of global LNG exports, may be unable to resume full operations for weeks or months even after peace returns.
The financial world has recorded the impact sharply. Asian stocks had their worst week since the pandemic, UK and European indices fell more than 5%, and bond markets experienced volatility not seen since some of the worst economic shocks of recent years. UK interest rate cut expectations fell from 80% to 15% in the space of a week. Airlines suffered some of the biggest share price falls, as soaring fuel costs threatened to devastate their business models.