Oil prices swung sharply as traders balanced heightened war risks to energy infrastructure with temporary U.S. easing of sanctions on Iranian oil, allowing millions of barrels to potentially flow back to markets.
Geopolitical Tensions Drive Market Swings
U.S. President Donald Trump issued a stark ultimatum over the weekend, threatening to “obliterate” Iran’s power plants unless the Strait of Hormuz fully reopens within 48 hours.
Iran’s Parliament Speaker Mohammad Baqer Qalibaf warned that any attack on Iranian facilities could lead to irreversible destruction of critical energy infrastructure across the Middle East.
The conflict has severely damaged Gulf energy sites and nearly halted shipping through the Strait of Hormuz, which carries about 20% of global oil and LNG supplies.
Analysts estimate a massive supply shock, with 7-10 million barrels per day of Middle East oil production lost due to disruptions.
Iraq declared force majeure on foreign-operated oilfields, slashing output at Basra Oil Company to just 900,000 bpd from 3.3 million bpd.
The International Energy Agency’s Fatih Birol called the crisis “very severe,” worse than the combined oil shocks of the 1970s.
Oil Prices and Supply Relief Efforts
Brent crude futures climbed 65 cents to $112.84 per barrel by early Monday trading, while WTI rose 84 cents to $98.75 per barrel.
Both benchmarks had dropped over $1 earlier in the session, highlighting the whipsaw action driven by conflicting signals.
The Brent-WTI spread widened to more than $13 per barrel, the largest in years, reflecting heightened risks to seaborne supplies.
Washington temporarily lifted sanctions on stranded Iranian oil cargoes, potentially releasing millions of barrels and prompting Asian refiners, including in India, to consider resuming purchases.
Experts like Vandana Hari of Vanda Insights noted that short-term sentiment sways on threats and rhetoric, but longer-term prices depend on Middle East oil flow restoration.
Amrita Sen of Energy Aspects warned that further escalation could push prices higher, as Iran shows no signs of backing down.
The U.S. has deployed thousands more troops to the region, adding to uncertainty.