Oil Prices Hit $120 Before Plunging as Middle East War Threatens Global Supply
Finn's Take· TL;DR- Oil prices spiked to $120 before falling below $100 as Iran's closure of the Strait of Hormuz blocks 20% of global supply.
- G7 nations consider releasing 300-400 million barrels from strategic reserves to stabilize markets, but reserves must eventually be repurchased at higher prices.
- Diesel prices surge nearly 90 cents weekly; prolonged strait closure could force permanently higher energy costs and accelerate alternative energy adoption globally.
Crisis Erupts in Energy Markets
Oil prices experienced their most dramatic swing in years on Monday, soaring to nearly $120 per barrel—the highest since Russia's 2022 invasion of Ukraine—before retreating below $100 . The wild volatility reflected growing fears about a global energy crisis as Iran's effective closure of the Strait of Hormuz has blocked roughly 20% of the world's daily oil supply .
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 . The last non-Iranian commercial ship to pass through Hormuz was a Chinese-owned bulk carrier on Saturday morning , highlighting the severity of the disruption.
Iraq, Kuwait and the UAE have cut oil production as storage tanks fill due to the reduced ability to export crude . Bahrain's state oil company declared force majeure, which releases it of its contractual obligations due to extraordinary circumstances , while Qatar has already halted LNG production after attacks on key infrastructure, and Saudi Arabia has already shut its biggest oil refinery .
Global Response Takes Shape
The price collapse later Monday came as French President Emmanuel Macron confirmed that "the use of strategic reserves is an envisaged option," with G7 finance ministers stating they "stand ready to take necessary measures, including to support global supply of energy such as stockpile release" . Reports emerged that the G7 was considering releasing 300 million to 400 million barrels of oil from global Strategic Petroleum Reserves .
A credible coordinated release of 60-100 million barrels could delay a clean break above $100 and temporarily reduce Brent crude by $10-20 per barrel . However, reserves released must eventually be bought back—and that future buying obligation is already being priced by sophisticated market participants, partially offsetting the near-term price suppression .
The challenge extends beyond simply releasing oil. The current Gulf supply disruption has primarily affected medium-sour crude—the type produced by Saudi Arabia, Kuwait, Iraq and the UAE. Not all G7 reserve stocks exactly match those grades, creating a mismatch that can reduce real-world effectiveness .
Economic Consequences Spread
The energy shock is already rippling through global markets and consumer prices. The price of diesel has skyrocketed, rising nearly 89 cents over the last week to $4.66 a gallon , while across Southeast Asia, the spike in prices has led to long lines outside filling stations, with one Vietnamese resident saying "Higher oil and gas prices will affect everyone and our economy" .
Vietnam's trade ministry has called on local businesses to encourage their employees to work from home as part of efforts to save on fuel amid supply disruptions . South Korean President Lee Jae Myung warned Monday of strict penalties for refiners and gas stations caught hoarding or colluding on prices .
Iran's Revolutionary Guard Corps has warned that ongoing U.S. and Israeli strikes on Iranian energy infrastructure could send global oil prices above $200 per barrel, saying "If you can tolerate oil at more than $200 per barrel, continue this game" .
Long-Term Implications
Oil market analysts have suggested that even if the war ended today, it could take two weeks to restore maritime traffic in the Gulf to pre-war levels and two months to return oil production to normal levels . If the Strait of Hormuz remains closed beyond the 60-day mark, the global economy may face a structural shift toward permanently higher energy costs and a forced acceleration of alternative energy adoption .
The stakes couldn't be higher for the global economy. The closure of the strait has triggered the biggest oil supply disruption in history , and unlike past shocks, there is no spare capacity to address the disruption because Saudi Arabia and the United Arab Emirates are cut off from the global oil market due to the strait's closure . Whether diplomatic pressure or military action can reopen this critical waterway will determine whether the world faces a temporary price spike or a prolonged energy crisis that reshapes the global economy.