Oil Prices Surge to Five-Month High as US Joins Israel in Strikes on Iran

Oil prices soared to their highest levels since January on Monday, following the United States’ decision to join Israel in launching strikes on Iranian nuclear sites over the weekend. The geopolitical flare-up has intensified market concerns about potential disruptions in global oil supply, particularly through the Strait of Hormuz.

The rally in crude benchmarks followed a sharp escalation in Middle East hostilities, which has raised the risk of reduced oil exports from the region and sparked renewed volatility across energy markets.

Brent and WTI Jump on Supply Fears

• Brent crude futures climbed $1.92, or 2.49%, to $78.93 a barrel, while U.S. West Texas Intermediate (WTI) advanced $1.89, or 2.56%, to $75.73 early Monday.
• Both benchmarks briefly surged over 3% during intraday trading, reaching $81.40 and $78.40, respectively, before paring some gains.

The rally was sparked by President Donald Trump’s announcement that the US had “obliterated” Iran’s key nuclear facilities in coordination with Israeli forces, marking a sharp escalation in Middle East tensions. Iran, the third-largest oil producer in OPEC, vowed to retaliate, fueling fears of further instability in the region.

Strait of Hormuz Under Spotlight

Market participants are particularly focused on the Strait of Hormuz, a critical chokepoint through which nearly 20% of global oil supply passes. Iran’s Press TV reported that the Iranian parliament had approved a measure to close the strait. Although such threats have been made in the past without action, the heightened tensions have made this scenario appear increasingly plausible.

Sparta Commodities noted that even with alternate pipeline routes, any blockage of the strait would still choke off a significant portion of global oil exports and force shippers to steer clear of the area.

Goldman Sachs Sees Brent Hitting $110 in Worst Case

In a research note released Sunday, Goldman Sachs warned that if oil flows through the Strait of Hormuz are halved for a month, Brent could briefly spike to $110 per barrel. Even under moderate disruption scenarios, prices could remain elevated, with Goldman projecting Brent to average around $95 in Q4 2025.

The bank also outlined two alternative scenarios:

• A 1.75 million barrels per day (bpd) drop in Iranian supply over six months could push Brent to a peak of $90, falling to the $60s in 2026.
• A longer-lasting reduction in supply may see Brent stabilize between $70 and $80 in 2026 due to tighter inventories and limited spare capacity.

Meanwhile, prediction markets now reflect a 52% probability of Iran closing the Strait of Hormuz, according to data cited from Polymarket.

Risk Premium May Be Temporary

While Brent has risen 13% and WTI 10% since the conflict began on June 13, analysts caution that the current geopolitical risk premium may not be sustainable without concrete supply disruptions. Profit-taking from earlier rallies could also limit further price increases in the short term.

Despite the mounting concerns, Goldman Sachs emphasized that strong economic incentives exist for major powers, including the US and China, to avoid a prolonged disruption of one of the world’s most vital oil trade routes.

Disclaimer:  At HDFC SKY, we take utmost care and due diligence in curating and presenting news and market-related content. However, inadvertent errors or omissions may occasionally occur.

If you have any concerns, questions, or wish to point out any discrepancies in our content, please feel free to write to us at content@hdfcsec.com.

Please note that the information shared is intended solely for informational purposes and does not make any investment recommendations