Global oil markets concluded the trading week at their most elevated levels in almost four years, propelled by a significant escalation of geopolitical tensions in the Middle East and a major supply disruption from Iraq. The international benchmark, Brent crude, settled at $112.19 per barrel on Friday, marking its highest closing price since July 2022. Meanwhile, the U.S. benchmark, West Texas Intermediate (WTI), finished at $98.32 on the expiring April contract. For the week, Brent posted a substantial gain of approximately 8.8%, whereas front-month WTI experienced a slight decline of roughly 0.4% from the previous Friday's close.
Geopolitical Spark Ignites Supply Fears
The primary catalyst for the week's volatility was a dual threat to global energy flows. Iraq's declaration of force majeure on foreign-developed oilfields—a legal provision that suspends contractual delivery obligations due to extraordinary events—immediately removed a significant volume of crude from the market. Concurrently, military actions widened across the region, with particular focus on the strategically vital Strait of Hormuz. This narrow maritime chokepoint is a conduit for about one-fifth of the world's seaborne oil and liquefied natural gas, making any threat to its security a direct threat to global energy stability.
This surge, which has seen prices climb over 40% since late February, has transcended its origins as a mere energy sector story. Traders are now pricing in the risk of prolonged supply losses, feeding broader macroeconomic anxieties about persistent inflation and potentially fewer interest-rate cuts from central banks worldwide.
A Week of Extreme Volatility
The trading period opened with a brief respite. On Monday, Brent fell 2.8% to $100.21 and WTI dropped 5.3% to $93.50. This pullback was driven by reports of some vessels successfully transiting the Strait of Hormuz and comments from the International Energy Agency (IEA) suggesting a readiness to release more emergency stockpiles if necessary.
This calm proved fleeting. By Tuesday, renewed Iranian attacks on the United Arab Emirates partially halted loading operations at Fujairah and slashed UAE output by more than half. This development reversed the prior day's losses, lifting Brent to $103.42 and WTI to $96.21. Analysts noted the extreme fragility of the situation, with IG's Tony Sycamore remarking that a single missile or mine targeting a tanker could instantly reignite the crisis.
The upward momentum continued Wednesday after Iran struck energy facilities across the Gulf, including Qatar's critical Ras Laffan industrial city. Brent settled at $107.38 and climbed further after-hours. SEB analyst Ole Hvalbye warned that any further escalation targeting energy infrastructure would continue to exert upward pressure on prices, even as U.S. authorities attempted to mitigate domestic fuel costs through regulatory waivers.
Swings Driven by Conflicting Signals
Thursday's session was characterized by dramatic intraday swings. Brent briefly touched $119.13 before closing at $108.65, while WTI topped $100 before retreating to $96.14. Traders juggled the possibility of additional U.S. strategic reserve releases against the potential unlocking of approximately 140 million barrels of stranded Iranian crude. This volatility pushed the price spread between Brent and WTI to an 11-year extreme. Market commentators interpreted the retreat from the day's highs as a sign that traders had gained some confidence in future supply availability.
By Friday, the physical market for actual oil cargoes appeared significantly tighter than futures prices suggested. Dubai crude hit a record $166.80 per barrel, Norway's Johan Sverdrup grade traded at an $11.30 premium to Brent, and northwest European jet fuel reached about $220 per barrel. Refiners scrambled for replacement barrels, particularly sour crude grades common in the Middle East. This disconnect highlighted the acute strain on immediate, deliverable supply.
Policy Responses and Market Uncertainty
In response to the crisis, Washington initiated the first round of a broader emergency program on Friday, lending 45.2 million barrels from the Strategic Petroleum Reserve to companies including BP, Shell, and Marathon Petroleum. These loans are part of an IEA-coordinated 400 million-barrel release designed to cap fuel costs. However, analysts noted such measures do not address the root causes of the disruption—they neither reopen the Strait of Hormuz nor repair damaged Gulf infrastructure.
The central uncertainty facing the market is the duration of the supply shock. Goldman Sachs presented a base case assuming oil flows begin recovering from April, with Brent easing into the $70s by the fourth quarter of 2026. However, the firm also issued a stark warning: if production damage proves lasting, the Hormuz disruption could become the largest supply shock on record, potentially keeping crude prices above $100 per barrel for an extended period.
