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Where to next for the oil price?
Oil markets face new phase of geopolitical risk with confirmed strikes on energy facilities and growing threats to Strait of Hormuz shipping routes.
Oil prices push higher as Iran conflict threatens critical Middle East energy infrastructure
Oil markets have entered a new phase of geopolitical risk, with prices pushing decisively higher amid escalating conflict involving Iran and growing evidence of damage to key Middle Eastern energy infrastructure. While benchmarks such as Brent crude oil and West Texas Intermediate (WTI) crude oil have moved above $100 per barrel, the underlying dynamics suggest the current price action may understate the scale of potential disruption.
Infrastructure strikes intensify supply fears
The latest leg higher in oil prices has been driven by confirmed and suspected strikes on energy infrastructure across the Middle East. Reports over recent days indicate attacks on Iranian oil facilities, disruptions to storage and export terminals, and heightened risks to tanker traffic navigating the Persian Gulf.
The situation is particularly acute around the Strait of Hormuz, the world's most critical oil chokepoint. Any sustained threat to this passage - through which roughly a fifth of global oil flows - immediately translates into a substantial risk premium in crude prices.
Beyond Iran itself, the broader concern is regional spillover. Gulf producers rely heavily on stable export infrastructure, including pipelines, terminals, and shipping lanes. Even limited damage or precautionary shutdowns can significantly tighten available supply.
Asia at the epicentre of the shock
While oil benchmarks are globally referenced, the physical impact of the disruption is highly uneven, and is being felt most acutely in Asia, creating regional divergence.
Most crude shipments passing through the Strait of Hormuz are destined for Asian buyers, with China, India, Japan, and South Korea accounting for the bulk of demand. In aggregate, Asia imports roughly 11.2 million barrels per day of crude and 1.4 million barrels per day of refined products via this route.
As a result, the immediate supply shortfall is concentrated in Asian markets, where dependence on Gulf barrels is highest. Early signs of demand destruction are already emerging, as sharply higher product prices and scarce spot cargoes begin to curb consumption.
Asian oil import dependence
Asia's reliance on Strait of Hormuz creates acute exposure:
- China imports approximately 4 - 5 million barrels per day via Hormuz
- India depends heavily on Gulf crude for refineries
- Japan and South Korea lack domestic production, import heavily
- Southeast Asian countries also import via the strait
- Total Asian flows exceed 11 million barrels per day
Timing effects create temporary illusion
A key feature of the current market is the lagged transmission of supply disruption across regions creating misleading stability.
Shipping times play a critical role:
- Gulf-to-Asia voyages typically take 10 - 15 days
- Shipments to Europe via the Suez Canal take 25 - 30 days
- Rerouted cargoes around the Cape of Good Hope can take 35 - 45 days
This means Asian markets are the first to feel the physical squeeze, while the Atlantic basin - including Europe and the US - experiences a delayed impact.
Consequently, benchmark prices such as Brent and WTI may appear relatively stable compared to the severity of the disruption. However, this stability is misleading.
Why Brent and WTI haven't fully reacted yet
The apparent resilience of global benchmarks reflects a combination of temporary buffers rather than genuine supply adequacy:
- Inventory overhangs in the Atlantic basin are cushioning immediate shortages
- Benchmark composition (which reflects regional crude streams) dampens the signal from disrupted Gulf flows
- Policy responses, including potential strategic reserve releases, are smoothing short-term volatility
Crucially, these factors delay, rather than eliminate, the adjustment process.
If disruptions in the Strait of Hormuz persist, the current regional divergence is unlikely to hold. As inventories are drawn down and replacement barrels become harder to source, Brent and WTI will eventually reprice higher to reflect a structurally tighter global market.
How to trade oil becomes particularly complex during such dislocations.
Market transitioning to physical tightness
At present, oil prices are being driven by a mix of geopolitical risk premium and localised physical stress, particularly in Asia. However, the market is at risk of transitioning into a more acute phase where actual supply shortages dominate price formation.
This transition typically follows a sequence:
- Initial shock: Prices rise on headline risk and precautionary positioning
- Regional dislocation: Physical shortages emerge in the most exposed markets (currently Asia)
- Inventory drawdown: Buffer stocks in less-affected regions begin to decline
- Global repricing: Benchmarks adjust sharply higher as the shortage becomes systemic
The oil market now appears to be moving from stage two towards stage three.
Two key variables determine trajectory
The trajectory of oil prices hinges on two key variables that will shape outcomes:
What happens next?
The trajectory of oil prices hinges on two key variables:
- Duration of disruption
- If infrastructure damage is contained and shipping through the Strait of Hormuz normalises, prices could stabilise near current levels.
Escalation risk
If attacks continue or expand, particularly targeting export terminals or tanker traffic, the market could face a sustained supply shock, pushing prices materially higher.
In a prolonged disruption scenario, the current divergence between Asian physical markets and Atlantic benchmarks would close rapidly, likely via a sharp upward adjustment in Brent and WTI.
Technical analysis of Brent and WTI crude oil prices
The price of Brent crude oil retested its 9 March spike high at $113.75 per barrel by so far rallying to $113.63 before retracing to below the $110 mark.
Brent crude oil daily candlestick chart
Were a rise and daily chart close above the $113.63 - $113.75 resistance area to be seen, the March to June 2022 peaks at $123.25 - $131.07 may be reached or even surpassed with the $150 region being hit.
Brent crude oil monthly candlestick chart
Only a short-term bearish reversal and fall through and daily chart close below the 18 March $97.65 low may lead to upside pressure fading with the $92.89 - $91.58 11 to 12 March price gap to be filled.
From a medium-term trend perspective, the oil price will remain in a clearly defined uptrend while no daily chart close below the 10 March low at $79.74 is seen.
When it comes to West Texas Intermediate (WTI) the technical picture looks more subdued with it trading close to the $100 mark but nowhere near its early March $119.48 high.
WTI crude oil daily candlestick chart
A rise and daily chart close above the mid-March $102.44 high would likely provoke a rally towards the recent $119.48 peak and the minor psychological $120 region.
WTI crude oil monthly candlestick chart
Further potential upside targets sit between the March and June 2022 peaks at $123.66 - $129.42 as well as around the $130 region.
A slip through the 18 March $91.45 low may lead to the $88 region being revisited.
While no fall through the 10 March low at $76.73 is seen, the medium-term uptrend is deemed to remain valid.
Conclusion
The rise in oil prices above $100 is not simply a reaction to geopolitical headlines, it reflects the early stages of a real supply shock centred on the Middle East’s energy infrastructure and export routes.
While Western benchmarks may still appear relatively contained, this reflects timing, geography, and temporary buffers rather than underlying stability. The true stress is already visible in Asian markets, where dependence on Gulf flows is highest.
If the Strait of Hormuz remains compromised, the global oil market is unlikely to avoid a broader and more pronounced repricing in the weeks ahead.
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