Brent crude oil prices jumped more than 10% before settling around 7% higher, reaching levels not seen since January.
Stock markets in Asia and Europe fell, with Japan's Nikkei and the UK's FTSE 100 indexes declining.
Safe-haven assets like gold saw gains, with the gold price hitting a near two-month high.
Analysts suggest that a major disruption to Middle East oil supply could push Brent crude prices to $80-$100 a barrel.
Despite the price jump, oil prices remain lower than the peaks seen after Russia's invasion of Ukraine in early 2022.
Market watchers believe Iran is unlikely to block the Strait of Hormuz, a vital oil artery, due to potential backlash from China and negative impacts on its own economy.
Why this matters: The surge in oil prices could impact consumers through higher petrol and food prices. Geopolitical tensions in the Middle East remain a key factor influencing global energy markets.
The initial surge in oil prices was triggered by concerns that a conflict between Israel and Iran could disrupt supplies from the Middle East. The Strait of Hormuz, a critical shipping route, sees approximately 20 million barrels of oil and oil products pass through daily, accounting for nearly one-fifth of global oil shipments.
However, analysts suggest that a full-scale disruption of global oil flows is unlikely. Ellen Wald of Transversal Consulting noted that impeding the passage of oil through the Strait of Hormuz offers "no net benefit" to Iran, especially since Iranian oil infrastructure has not been directly targeted. Additionally, any significant spike in oil prices could draw backlash from China, Iran's largest oil customer.
Anas Alhajji of Energy Outlook Advisors echoed this sentiment, stating that disrupting the channel could be more of a detriment than a benefit for Tehran, given that most of Iran's daily consumption goods come via that route.
While a full-scale blockade of the Strait of Hormuz is considered unlikely due to the presence of the US Fifth Fleet in Bahrain, analysts suggest that Iran could still launch attacks on tankers or mine the strait to disrupt maritime traffic.
How to Prepare: Monitor fuel prices and consider hedging strategies if your business relies heavily on transportation. Stay informed about geopolitical developments and their potential impact on energy markets.
Who This Affects Most: Consumers, transportation companies, and industries reliant on oil as a key input will be most affected by fluctuating oil prices.
Q: What could happen if the conflict escalates?
Analysts believe that if Iran's oil production and export facilities were targeted, the price of Brent crude could jump to around $80-$100 a barrel.
Q: Why is the Strait of Hormuz so important?
The Strait of Hormuz connects the Persian Gulf to the Arabian Sea and is a critical shipping route for approximately one-fifth of the world's oil supply.
Q: Is Iran likely to block the Strait of Hormuz?
Most analysts believe a full-scale disruption is unlikely due to potential backlash from China and negative impacts on Iran's own economy.
Geopolitical tensions in the Middle East are a major driver of oil price volatility.
A full-scale disruption of oil supplies from the region could lead to a significant spike in prices.
While a blockade of the Strait of Hormuz is considered unlikely, disruptions to maritime traffic remain a concern.
Monitor fuel prices and geopolitical developments to stay informed about potential impacts.
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