Oil prices edged higher on Monday morning, building on significant gains made on Friday, as the conflict in Middle East between Israel and Iran continues to escalate.
Oil prices were volatile on Monday morning, continuing their upward climb at the start of the week. Major markets assessed the impact of escalating tensions between Israel and Iran over the weekend, which added to fears of increased disruption to global energy supplies.
Brent crude edged higher by 0.5% in early trading, reaching $74.60 a barrel to move close to five-month highs it touched late last week. West Texas Intermediate (WTI) also gained, rising around 1%.
This followed a breakout Friday in which both benchmarks settled 7% higher, having jumped more than 13% during the session to their highest levels since January. Oil prices are set to be closely watched in the coming days. Analysts will be tracking how the conflict escalates around energy flows, with the future outlook currently impossible to predict.
Oil prices linked to Middle East developments
One of the main concerns for energy markets is whether the ongoing conflict could lead to disruptions in the Strait of Hormuz. It is a crucial shipping route through which around one-fifth of the world’s daily oil consumption flows.
The strait accounts for an estimated 18 to 19 million barrels per day of crude oil, refined fuels, and condensates, which all pass through its narrow waterways, making it a vital route for global energy trade.
While attention has largely focused on the immediate impact of attacks on Iranian energy infrastructure, the possibility of Iran moving to restrict or block access to the strait has intensified market anxiety. Such a scenario could drive oil prices sharply higher due to the potential scale of the supply shock.
Potential disruptions to Iranian oil supplies
Iran, a member of OPEC, is currently producing approximately 3.3 million barrels per day and exporting over 2 million. Analysts suggest that the spare production capacity held by OPEC+ members may be just enough to compensate for any disruption to Iranian supply, but the market would likely remain tight.
Should Iranian exports be curtailed, Chinese refiners, who are currently the world’s leading buyers of Iranian crude, would need to look for alternative sources. This could lead to China potentially shifting to other Gulf producers or increasing reliance on Russian grades. Consequently, it could place added strain on regional supply chains and freight networks.
Meanwhile, industry experts also warn that such developments could drive up shipping and insurance costs for tankers operating in the region. A narrowing of the Brent-Dubai spread, alongside increased logistical costs, may also erode profit margins for refineries. This issue would be felt particularly strongly across Asia, where many depend on competitive pricing for Middle Eastern oil.
How have world leaders responded?
On Sunday, US President Donald Trump expressed hope that Israel and Iran could broker a ceasefire. However, he accepted that sometimes countries had to fight it out first. Trump made it clear that the US would continue to support Israel but declined to say if he had asked the country to pause its strikes on Iran.
Elsewhere, German Chancellor Friedrich Merz said he hoped a meeting of the Group of Seven leaders convening in Canada would reach an agreement to help resolve the conflict and keep it from escalating.
As for Iran, national representatives reportedly told mediators Qatar and Oman that it is not open to negotiating a ceasefire while under Israeli attack. What it all means is, for now, both traders and policymakers are watching the Gulf with growing unease.
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