Oil prices swing wildly as Iran war threatens transport routes and production across Middle East

The widening Iran war has upended oil production and shipping across the Middle East, straining energy supplies worldwide.

Those disruptions caused oil to spike Monday, only for it to swiftly fall back after President Donald Trump suggested the war could be near an end.

The price of Brent crude, the international benchmark, briefly surged to $119.50 per barrel on Monday — its highest level since the summer after Russia invaded Ukraine in 2022. West Texas Intermediate, which is produced in the U.S., also soared to $119.48 per barrel at one point. But those prices fell to under $90 late Monday, as markets made significant reversals after Trump told CBS News he thinks “the war is very complete.”

Still, that’s much higher than the roughly $70 a barrel crude was selling for before the U.S. and Israel launched the war against Iran on Feb. 28.

The conflict, now in its second week, is ensnaring countries and infrastructure critical to the production and transportation of oil and gas worldwide. And on Monday, Iran named Ayatollah Mojtaba Khamenei to succeed his late father as supreme leader — a new sign of defiance from the country’s leaders as the U.S. and Israel continue heavy bombardment.

Fears of attacks have all but stopped tanker traffic in the Strait of Hormuz, a narrow waterway off Iran’s coast where a fifth of the world’s oil sails through on a typical day. Major oil producers in the region like Iraq, Kuwait and the UAE have cut production due to export constraints because they are running out of storage space. Iran, Israel and the U.S. have all struck oil and gas facilities since the war started, worsening supply concerns.

“In economic terms, this is already the largest oil supply shock ever,” said Nicholas Mulder, an assitant professor of history who studies the economic impacts of wars at Cornell University. As Gulf producers reduce output and shut down production, he explained, “we are seeing roughly three to four times as many barrels of oil lost as during the 1973 and 1979 oil crises.”

The war’s toll on civilian targets and the energy sector grew over the weekend, notably as oil depots in Tehran smoldered following Sunday strikes by Israel. Meanwhile, across the Persian Gulf, Bahrain accused Iran of striking a desalination plant vital to drinking water supplies. Bahrain’s national oil company declared force majeure for its shipments after an Iranian attack set its refinery complex ablaze. The legal declaration releases the company of contractual obligations because of extraordinary circumstances.

And the war has disrupted critical supply chains. Roughly 15 million barrels of crude oil — about 20% of the world’s oil — typically are shipped every day through the Strait of Hormuz, according to independent research firm Rystad Energy. The threat of Iranian missile and drone attacks has all but stopped tankers carrying oil and gas from Saudi Arabia, Kuwait, Iraq, Qatar, Bahrain, the United Arab Emirates and Iran from traveling through the strait.

Some energy experts warn of drawn-out ramifications.

Jim Burkhard, vice president and global head of crude oil research at S&P Global Energy, pointed particularly to rising production cuts and storage constraints — noting that the crisis had evolved past a solely transporation issue, and that restoring outputs will be “a massive technical exercise that could last weeks or more.”

And even higher oil prices could arrive in the near future. If the Strait of Hormuz, in particular, remains closed for only a few weeks, oil and gas strategists at Macquarie Research said the price of crude could push to a $150 per barrel or higher. That would top previous peaks of around $147 reached just ahead of the 2008 financial crisis.

Others, however, expect disruptions to be more short-lived. Oxford Economics researchers predict prices will fall to an average of $80 a barrel for the quarter, but noted Monday that the “risk of a more prolonged crisis has clearly increased.”

In response to soaring prices, there has also been discussions of dipping into emergency oil stockpiles in the U.S. and elsewhere. But on Monday, the Group of Seven major industrialized powers said it had decided against using their strategic reserves, at least for now.

“We’re not there yet,” French Finance Minister Roland Lescure said after chairing a meeting of his G7 counterparts. Still, he told reporters in Brussels that the group was “ready to take necessary and coordinated steps in order to stabilize markets, such as strategic stockpiling.”

On Saturday, Trump downplayed the idea of turning to America’s Strategic Petroleum Reserve, maintaining U.S. supplies were ample and prices would soon fall.

Yet the surge in costs for oil and natural gas is still pushing fuel prices higher, cascading through a range of industries — impacting anything from jet fuel for airplanes and car gas prices, to household energy bills.

Experts like Burkhard note that Asian economies are especially vulnerable, due to the region’s heavy reliance on imports from the Middle East.

Iran exports roughly 1.6 million barrels of oil a day, mostly to China, which has called for an immediate end to the fighting. Beijing may need to look elsewhere for supply if Iran’s exports are disrupted, another factor that could increase energy prices.

South Korean President Lee Jae Myung also warned of strict penalties for refiners and gas stations caught hoarding or colluding on prices, saying it would be wise to find alternatives to supplies that must travel through the Strait of Hormuz.

Across Southeast Asia, the spike in prices has led to long lines outside filling stations.

But price hikes are spreading worldwide. Higher energy costs can push overall inflation higher, straining household budgets and denting the consumer spending that is the dominant engine behind some big economies, including the U.S. Those worries have spilled into financial markets, pulling share prices sharply lower since the war began.

The U.S. is now a net exporter of oil, so it will “suffer less from a rally in Brent and WTI above $100” than Europe or Asia, FxPro chief market analyst Alex Kuptsikevich noted Monday. Still, he stressed past rapid surges in oil prices have contributed to U.S. recessions.

Gas prices have already climbed for American drivers. On Monday, the average U.S. price of a gallon of regular gasoline rose to $3.48, up nearly 50 cents from a week earlier, according to AAA motor club. Diesel, used heavily in shipping, sold for about $4.66 a gallon, a weekly increase of more than 80 cents.

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This story has been corrected to show that the Israel-U.S. attacks on Iran started Feb. 28, not March 1.

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Kurtenbach reported from Bangkok. Associated Press journalists John Leicester in Paris and Lorne Cook in Brussels contributed.

Alex Veiga, Elaine Kurtenbach And Wyatte Grantham-philips, The Associated Press