Oil prices rose to their highest in nearly three years as escalating conflict in the Middle East disrupted energy supplies and sparked fears of a major global shock to oil markets.
Global benchmark Brent crude briefly climbed to $119.50 a barrel in overnight trading, the first time prices neared $120 since 2022, before falling back to around $107, after reports that the Group of Seven could release strategic oil reserves to stabilize markets.
The sharp increase came as shipping through the Strait of Hormuz, one of the world’s most important energy corridors, came to a near standstill due to escalating military tensions between Iran, the United States and Israel.
The Strait of Hormuz, a narrow waterway connecting the Persian Gulf with the Gulf of Oman, typically carries about 20% of global oil exports. The latest conflict has seen tanker traffic collapse as insurers, shipping companies and crews refuse to risk the route.
According to shipping tracker MarineTraffic, just nine merchant ships passed through the strait last week, compared with a typical daily average of about 50 before hostilities intensified.
Iran’s Islamic Revolutionary Guard Corps has warned that any ships attempting to pass through the waterway could be attacked, threatening to “set fire” to ships using the route.
The disruption has forced energy traders and governments to grapple with the possibility of one of the biggest supply shocks since the oil crises of the 1970s.
Brent crude has already risen more than 50% since early 2026, when prices were around $61 a barrel.
The increase accelerated dramatically after several Gulf producers, including Qatar, the United Arab Emirates, Kuwait and Iraq, cut production amid growing conflict.
Analysts at Goldman Sachs warned that prices could rise even further if tanker flows do not recover quickly.
The bank said Brent crude could surpass the peak of $146 reached during the 2008 oil crisis if the strait remains closed for an extended period.
“Our analysis suggests that developments in the Persian Gulf represent one of the most serious disruptions to global energy supplies in decades,” Goldman said in a note to investors.
The crisis has already severely affected production in Iraq, one of the region’s largest oil exporters.
Production from key oil fields in southern Iraq has reportedly fallen 70% to about 1.3 million barrels per day, compared to about 4.3 million barrels per day before the conflict escalated.
Officials at the state-run Basra Oil Company said exports had virtually stalled because tankers were unable to reach the country’s main terminals.
Storage facilities in southern Iraq have reportedly reached full capacity as crude oil continues to be pumped but not shipped.
“This is the biggest operational threat Iraq has faced in more than 20 years,” a senior Iraqi oil ministry official told Reuters.
Economists warn that the energy shock could ripple across the global economy if prices remain high.
Analysts at JPMorgan Chase estimate that a stabilization in oil prices around $120 a barrel could increase global inflation by more than a percentage point and reduce economic growth by up to 1.2 percentage points.
The surge has already pushed investors into safe havens, strengthened the U.S. dollar and sparked volatility in stock markets.
Asian stock markets suffered sharp declines earlier this week as investors reacted to the possibility of a prolonged disruption to energy flows.
Industry data suggests hundreds of oil tankers are effectively stranded in the Persian Gulf region as shipowners take a “wait and see” approach.
Analysts at Goldman Sachs said many shipping companies were unwilling to risk sending ships through the Strait of Hormuz while the security situation remained uncertain.
“Most shippers are currently in a wait-and-see attitude while physical risks in the Strait remain elevated,” the bank said.
According to an initial analysis of trade flows, the disruption is already significantly larger than the shock caused by Russia’s invasion of Ukraine in 2022.
G7 considers emergency release of oil
To prevent the crisis from worsening further, G7 finance ministers are expected to meet to discuss releasing crude oil from strategic emergency reserves.
Such coordinated releases have been used before to stabilize markets during supply shocks, including in the early months of the Ukraine war.
But analysts warn that emergency supplies may only provide temporary relief if shipping disruption continues.
The rise in energy prices has also complicated the outlook for global monetary policy.
Traders have sharply scaled back their expectations of interest rate cuts by major central banks amid concerns that the energy shock could trigger a new wave of inflation.
Economists at Deutsche Bank warned that the Bank of England could cut interest rates just once in 2026 if oil prices remain high.
Britain’s chief economist Sanjay Raja said inflation in the UK could rise to as much as 3.8% if energy costs remain high.
In this scenario, he suggested the UK government could be forced to consider cutting fuel taxes to offset rising household energy and transport costs.
Some economists believe the crisis could rival some of the largest oil disruptions in modern history.
Nobel Prize-winning economist Paul Krugman said the situation could potentially surpass previous shocks linked to the 1973 Yom Kippur War and the 1979 Iranian Revolution.
“The disruption to global oil supplies caused by the war in Iran looks extremely serious,” Krugman wrote.
“If the Strait of Hormuz remains closed for an extended period of time, it will be a disruption worse than any of these historic energy crises.”
For now, global markets remain focused on whether tanker traffic through the strait can resume – a development that could quickly send oil prices lower – or whether the conflict will worsen into a prolonged geopolitical and economic shock.
