Global oil benchmarks climbed sharply to four-year highs before slipping back on Thursday as market participants weighed the risk that a widening U.S.-Iran war could trigger a prolonged interruption to Middle East supplies and sap global growth.
The initial lift to prices followed a report by Axios, which, citing unidentified sources, said U.S. President Donald Trump was due to receive a briefing on Thursday outlining plans for a series of military strikes on Iran intended to push Tehran back into negotiations over its nuclear programme. That report stoked fears of a deeper conflict and of extended disruption to energy flows from the region.
On the day, the global benchmark Brent crude futures touched as high as $126.41 a barrel - the loftiest level since March 9, 2022 - before sliding. By 1230 GMT Brent was down $4.13, or 3.5%, at $113.90. The prompt June contract expires on Thursday, and the more active July contract was trading at $108.83, down $1.61 or 1.5%.
U.S. benchmark West Texas Intermediate (WTI) also eased from intraday gains, trading down $1.96, or 1.8%, at $104.92 after earlier reaching $110.93, the highest since April 7. Both benchmarks are, however, positioned for their fourth consecutive month of gains, reflecting investor concern that the Iran conflict could choke supplies for months.
Scale of the supply shock and market dynamics
Prices have moved sharply higher since the U.S.-Israeli attack on Iran began on February 28. Brent has doubled since that date while WTI is up roughly 90% as the fighting has effectively closed the Strait of Hormuz - a vital chokepoint through which around a fifth of the world’s oil and liquefied natural gas transits. The spike in oil risks reviving inflationary pressures globally and lifting pump prices in the United States ahead of the midterm elections later this year.
Oil, gas and refined products play a central role in transportation, heating, industry and the manufacture of plastics and fertilisers, intensifying the economic implications of sustained price elevation.
John Evans of oil broker PVM highlighted the heightened upside potential, saying: "For those who do not think Brent prices have the potential to reach $150 a barrel, you ought to look away now."
Volatility, contract mechanics and trading flows
Market participants and analysts noted that the fall from intraday highs lacked a single clear catalyst. Tamas Varga, also of PVM, said the retreat did not appear to stem from a distinct new development but rather reflected the elevated volatility that has gripped markets since the Iran war began.
Traders pointed to two large sell orders in the June Brent contract traded shortly before 0930 GMT, with LSEG data confirming the activity. Other analysts cautioned that prices can be particularly volatile around contract expiries, which may have amplified intraday swings.
Brent was the largest mover among wider European financial markets, and a jump in the yen during the session spurred speculation about possible foreign exchange intervention.
Conflict status and diplomatic deadlock
Earlier this month, Trump called a ceasefire in the war but simultaneously imposed a U.S. blockade on Iranian ports. Efforts to negotiate an end to the conflict have stalled. The United States has insisted on discussing Iran’s alleged nuclear weapons programme, while Iran has demanded some control over the Strait of Hormuz and reparations for war-related damage.
The human and infrastructure toll has been severe; the conflict has killed thousands and, according to the International Energy Agency, caused what it describes as the world’s biggest oil disruption ever. IG market analyst Tony Sycamore said: "Prospects for any near-term resolution to the Iran conflict or a reopening of the Strait of Hormuz remain dim."
Shipping, flows and the impact on physical trade
Shipping data showed that activity through the Strait of Hormuz has contracted to a fraction of normal levels. In the past 24 hours at least seven ships transited the waterway, according to Kpler ship-tracking data and satellite analysis from SynMax. Of those vessels, three were dry bulk carriers, one was a container ship and two were bitumen tankers. By comparison, prior to the war between 125 and 140 vessels used the strait daily.
Market participants say the practical closure of the strait is the dominant factor driving prices at present, outweighing longer-dated considerations such as the potential reduction in OPEC+ influence following the United Arab Emirates' decision to leave OPEC after nearly 60 years of membership.
OANDA senior market analyst Kelvin Wong noted that the closure outweighs the longer-term implications of the UAE’s exit from OPEC, which sources said would complicate OPEC+ efforts to balance the market through coordinated supply adjustments. Nonetheless, sources told Reuters that OPEC+ is likely to agree a modest increase of around 188,000 barrels per day in its oil output quotas on Sunday.
Analysts point out that while the UAE’s departure from OPEC and OPEC+ could allow it to raise production once exports resume, this is unlikely to have a substantial impact on immediate market fundamentals.
Demand destruction and potential relief
One mechanism that could ease the current tightness is destruction of demand as consumers and end-users cut back in response to higher prices. ING analysts estimate that approximately 1.6 million barrels per day of demand could be lost as users reduce consumption because of elevated costs. While material, ING noted that such a reduction is "clearly not enough to fill the supply gap we are currently facing."
Outlook
Markets remain on edge. Elevated prices are feeding through into inflation measures and consumer costs, while physical trade flows through the Strait of Hormuz are at a small fraction of their pre-conflict levels. With diplomatic efforts stalled and military planning reported at the highest levels of the U.S. administration, the prospect of further market instability persists, leaving energy, transport and broader economic indicators closely attuned to developments in the region.