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Brent crude, the international standard for oil prices, jumped by over 7% during early trading on Thursday, touching $126 per barrel, the highest intraday level since 2022 when Russia initiated the full-scale invasion of Ukraine.
The US benchmark crude, WTI, also rose more than 3% and hit over $110 per barrel.
At the time of writing, prices have corrected slightly with the front month contract for Brent trading at around $122 per barrel and WTI at roughly $108.5.
Prices are now the highest they have been since the start of the Iran war.
The surge in oil prices is a direct consequence of stalled negotiations over the reopening of the Strait of Hormuz, the absence of a clear path toward ending the war and a seemingly increased chance of US-Israeli military action returning.
US President Donald Trump is set to meet with the head of the US Central Command, Admiral Brad Cooper, on Thursday and receive a briefing on new military options for action in Iran, according to Axios which cites two unnamed people.
The meeting signals the potential for fresh escalation in the Middle East as the resumption of combat operations is reportedly “seriously under consideration” and oil markets have reacted swiftly to the news.
A ceasefire has held since early April but recent negotiating efforts have fallen flat with the two sides refusing to meet. Meanwhile, the US and Iran both maintain their blockade of the vital Strait of Hormuz.
US Central Command has also reportedly asked for hypersonic missiles to be sent to the Middle East, which would mark the first time the US army has deployed that type of weapon.
The persistent blockade of ports and the threat of expanded combat have fundamentally reshaped market expectations.
A shifting landscape for OPEC and global supply
The spike in prices is occurring against a backdrop of significant structural change within the global oil hierarchy.
Earlier this week, the United Arab Emirates officially withdrew from the Organisation of the Petroleum Exporting Countries (OPEC) and its wider alliance (OPEC+), a move the nation claimed was necessary to prioritise its own national interests.
Under normal market conditions, the exit of a major producer from the cartel might be expected to signal a potential increase in supply or a decrease in price stability.
However, the sheer scale of the Iran war has rendered the UAE’s departure secondary in the minds of traders.
Despite the UAE’s exit, which was expected to potentially weaken OPEC’s grip on production quotas, prices have continued their upward trajectory.
This suggests that the “war premium” currently dominates all other market fundamentals.
Investors are currently less concerned with the internal politics of oil-producing nations and more focused on the immediate physical absence of Iranian crude, suspended shipping routes through the Strait of Hormuz and the threat to regional infrastructure.
However, the transition of the UAE to an independent actor still highlights a growing fragmentation in global energy governance at a time when the world’s energy security is at its most vulnerable.