At the beginning of the week, oil prices surged due to ongoing unrest in the Middle East, and this prompted investors to quickly shift their funds to gold, the dollar and bonds. Stock exchanges in Asia, Europe and New York have all declined significantly.
The price of Brent crude increased by 7.5% to $78.34 per barrel. The price of WTI increased by 7.3% to $71.88 per barrel. The price of gold increased by 1.5% to $5,358 per ounce largely as a result of continued U.S. and Israeli airstrikes against Iranian military targets and subsequent retaliatory missile strikes by Iran against U.S. and allied forces in the region.
Strait of Hormuz in Focus
The focus is now on the Strait of Hormuz, as almost one-fifth of the world’s seaborne oil and 20% of liquefied natural gas flows through the narrow body of water. The strait is still open for traffic, though, due to the recent threats and increase in insurance costs, the volume of tankers transiting through the strait has dropped dramatically. Vessels are now clustering on either side of the strait, according to marine tracking data.
Jorge Leon from Rystad Energy indicates that if traffic were to completely stop, it could result in a decrease of up to 15 million barrels of crude oil per day reaching the global market. He also indicated that unless tensions are eased soon, there is a good possibility that crude prices will increase significantly.
Echoes of the 1970s
Some analysts have already made comparisons to the oil embargo of the 1970s. One example, Alan Gelder from Wood Mackenzie, states that oil prices fluctuated by 300% between 1974 and 1975; based on today’s prices, this equals approximately $90/barrel in April 2026. Given industrial and commercial activity already at the higher end of the spectrum since the beginning of the year, it is conceivable that prices will increase above these levels.
OPEC recently agreed on a relatively modest increase in their production quotas beginning in April 2023—a total of 206,000 additional barrels per day; however, most of the new supply will come from oil sources that use the Gulf of Mexico for delivery. If marine transportation is still restricted after April, added output will have only minimal benefit to consumers at that time due to logistical constraints associated with getting product to market.
Global Markets Under Strain
The sudden change throughout Asia came as a big disappointment to stock investors. The Tokyo Stock Exchange (Nikkei 225) was lower by 2.3% on the day; the airline sector was hit particularly hard, fully reflecting their increased fuel costs. South Korean stocks declined 1% as well. The MSCI Asia Pacific Index, excluding Japan, traded down 0.6%.
In Europe, futures for both EUROSTOXX and DAX were lower, while in the US, S&P 500 and Nasdaq were both off by 1.1%.
The US dollar has continued to strengthen during this broader economic turmoil. The US remains a net exporter of energy. Investors have turned to US Treasuries as a “safe haven”, pushing UST yields on ten-year bonds down to a new three-month low of 3.926%.
Inflation Fears Resurface
The continual increase in the price of oil may lead to additional global inflation. Higher fuel prices act as a tax on both businesses and households, which means that demand could suffer as a result. Therefore, central banks need to maintain a fine balance.
This week there will be key US statistics released, including some manufacturing surveys and payroll numbers. Currently, the markets have a narrow majority price for a June rate cut.
As for the oil and market direction overall, that will depend on whether or not the conflict settles down or escalates into a longer-term crisis.
