Oil Prices Surge as Middle East Conflict Raises Supply Disruption Risks
Oil prices climbed sharply on Wednesday, extending strong gains from earlier in the week as investors focused on the growing geopolitical tensions involving the United States, Israel, and Iran. Concerns that the conflict could disrupt global oil supply continued to drive the market higher.
At 03:40 ET (08:40 GMT), Brent crude futures for May delivery rose 3.5% to $84.25 per barrel, while U.S. West Texas Intermediate (WTI) crude futures increased 3.4% to $77.10 per barrel.
Both benchmarks had already gained nearly 5% on Tuesday, adding to about 7% gains recorded earlier in the week. Brent crude also reached its highest level since July 2024, highlighting the growing geopolitical risk premium in oil markets.
Traders Focus on Oil Supply Risks
The recent surge in oil prices follows escalating tensions in the Middle East conflict, which began over the weekend after coordinated U.S. and Israeli strikes on Iranian military targets.
According to U.S. Admiral Brad Cooper, who oversees American forces in the region, more than 2,000 Iranian targets have been struck so far.
Iran has responded with missile and drone attacks targeting neighboring Arab countries hosting U.S. bases, while also issuing warnings to global shipping companies operating in the region.
Particular attention has been focused on the Strait of Hormuz, a critical maritime route that handles roughly 20% of global oil shipments. Iran has threatened oil tankers passing through the narrow waterway, raising fears of supply disruptions.
The strait is a major export route for crude oil from leading producers such as Saudi Arabia, Iraq, and the United Arab Emirates, meaning any disruption could significantly impact global energy markets.
Analysts at ING noted that the potential disruption of oil shipments through the Strait of Hormuz is already affecting upstream supply flows.
They also pointed to reports suggesting that Iraq has begun reducing output at key oil fields, including the Rumaila field, the country’s largest, and West Qurna 2, with roughly 1.2 million barrels per day of production temporarily halted.
Goldman Sachs Raises Oil Price Forecasts
Amid these supply risks, Goldman Sachs increased its oil price forecasts for 2026.
The investment bank raised its average Brent crude forecast for the second quarter of 2026 by $10 to $76 per barrel, while its WTI forecast was lifted by $9 to $71 per barrel.
The revised projections assume that reduced oil flows through the Strait of Hormuz could significantly lower OECD oil inventories and reduce Middle East production in the coming months.
Goldman Sachs also emphasized that the risks to its forecast remain skewed to the upside, particularly if disruptions to oil exports last longer than expected or if energy infrastructure suffers damage.
According to the bank, if oil shipments through the Strait of Hormuz remain restricted for an additional five weeks, Brent crude prices could potentially climb to $100 per barrel. At that level, higher prices could begin to reduce global demand and stabilize falling inventories.
Risk of Demand Destruction if Prices Stay High
However, some analysts warn that prolonged supply disruptions and high oil prices could eventually weigh on global economic growth.
Nikos Tzabouras, Senior Market Analyst at Tradu.com, said that while supply disruptions are currently pushing prices higher, sustained price increases could trigger demand destruction.
He added that higher oil prices could also contribute to inflation pressures, increasing the likelihood of tighter monetary policies and amplifying economic risks.
U.S. Plans Naval Escorts for Oil Tankers
Oil traders are also monitoring comments from U.S. President Donald Trump, who stated that the U.S. Navy may escort commercial vessels if necessary to ensure safe passage through the Strait of Hormuz.
The administration also pledged government support to help maintain secure shipping routes in the region.
According to ING analysts, this move comes as insurance companies begin cancelling war-risk coverage for vessels traveling through the Strait of Hormuz.
While the possibility of naval escorts could help stabilize shipping routes, analysts noted that implementing such measures may take time.
Although escalating military tensions have boosted oil prices, international efforts to secure maritime transport could help limit further price gains in the near term.
