Oil prices soared sharply to approach $120 per barrel before falling back slightly on Monday as the Iran war intensified, threatening production and shipping in the Middle East and pummeling financial markets.
The prices were at their highest levels since at least mid-2022 as some major producers cut supplies, and fears of prolonged shipping disruptions gripped the market due to the expanding U.S.-Israeli war with Iran.
Energy markets are particularly nervous because the crisis is unfolding around the Strait of Hormuz, through which roughly one-fifth of the world's oil supply normally passes.
Brent crude futures were up $24.96 or 27% at $117.65 per barrel at 04:51 a.m. GMT – on track for the biggest-ever jump in a single day, while U.S. West Texas Intermediate (WTI) crude futures were up $25.72, or 28.3%, to $116.62.
WTI surged 31.4% to a session high of $119.48 a barrel earlier on Monday, while Brent rose as much as 29% to $119.50 a barrel. Before the surge on Monday, Brent had already climbed 27% and WTI by 35.6% last week.
As of 07:20 GMT, Brent was down to around $106 a barrel while WTI was hovering around $101.8. The prices eased slightly amid reports that G-7 finance ministers, alongside the International Energy Agency (IEA), were set for a meeting which could release emergency stocks to counter pressures in the global energy markets.
The war’s toll on civilian targets grew as Bahrain accused Iran of striking a desalination plant vital to drinking water supplies, and oil depots in Tehran smoldered following overnight Israeli strikes over the weekend.
Oil prices have surged as the war, now in its second week, ensnares countries and places that are critical to the production and movement of oil and gas from the Persian Gulf.
Roughly 15 million barrels of crude oil – about 20% of the world’s oil – are typically shipped every day through the Strait of Hormuz, according to independent research firm Rystad Energy.
The threat of Iranian missile and drone attacks, which have stepped up following U.S.-Israeli attacks, has all but stopped tankers from traveling through the strait, which is bordered in the north by Iran, carrying oil and gas from Saudi Arabia, Kuwait, Iraq, Qatar, Bahrain, the United Arab Emirates (UAE) and Iran.
Iraq, Kuwait and the UAE have cut their oil production as storage tanks fill due to the reduced ability to export crude. Iran, Israel and the United States also have attacked oil and gas facilities since the war started, exacerbating supply concerns.
The surge in costs for oil and natural gas is pushing fuel prices higher, cascading through other industries and jolting Asian economies that are especially vulnerable due to the region's heavy reliance on imports from the Middle East.
The last time Brent and U.S. crude futures traded near the current level was in 2022, after Russia invaded Ukraine.
Higher energy costs push inflation higher, straining household budgets and denting the consumer spending that is a main driver of many big economies.
Tokyo's benchmark Nikkei 225 index plunged more than 7% early Monday, while other markets also foundered.
In the U.S., a gallon of regular gasoline rose to $3.45 on Sunday, about 47 cents more than a week earlier, according to the AAA motor club. Diesel was selling for about $4.60 a gallon, a weekly increase of about 83 cents.
U.S. Energy Secretary Chris Wright, speaking on CNN’s "State of the Unio" said U.S. gas prices would be back under $3 a gallon "before too long.”
"Look, you never know exactly the time frame of this, but, in the worst case, this is a weeks, this is not a months thing," Wright added.
If oil prices stay above $100 per barrel, some analysts and investors say it could be too much for the global economy to withstand.
Iranian authorities said strikes by Israel on oil depots in Tehran and a petroleum transfer terminal early Sunday killed four people. Israel’s military said the depots were being used by Iran’s military for fuel to launch missiles. Mohammad Bagher Qalibaf, the speaker of Iran’s parliament, warned that the war’s impact on the oil industry would spiral.
Iran exports roughly 1.6 million barrels of oil a day, mostly to China, which may need to look elsewhere for supply if Iran’s exports are disrupted, another factor that could increase energy prices.
The price of natural gas also has climbed during the war, though not by as much as oil. It was selling for about $3.33 per 1,000 cubic feet late Sunday. That’s 4.6% higher than its Friday closing price of $3.19, after rising about 11% last week.
U.S. stock index futures fell early Monday, pointing to likely losses for Wall Street's main indexes when they open.
On Friday, the S&P 500 dropped 1.3% and the Dow plunged as many as 945 points before finishing with a loss of roughly 450. The Nasdaq composite sank 1.6%.
