Oil towards $120 a barrel: the war with Iran shakes the markets and the Strait of Hormuz

Oil experienced a historic jump after on Monday its price passed the $100 a barrel mark for the first time since 2022. In the midst of the American-Israeli war with Iran, the "Brent" variety briefly approached $120 a barrel before settling around $105. According to "Reuters", this is the largest one-day increase of the benchmark both in percentage and in absolute values - a movement that triggered a shock wave in the world's financial markets. Asian stock exchanges sank, and European indices fell to their lowest levels in over two months.

The Strait of Hormuz – congested, supplies under pressure

The military conflict, practically paralyzed the Strait of Hormuz – the narrow corridor through which about 20% of the world's daily crude oil supplies pass. The Islamic Revolutionary Guard Corps warned ships to avoid passing through the strait, after which traffic almost stopped, and large carriers such as "Maersk" and "MSC" froze new bookings to the region.

Due to the blocked route and limited opportunities for redirection, Iraq, the United Arab Emirates and Kuwait – three of the key OPEC producers – were forced to temporarily reduce production due to full storage capacities, according to analysts from "ING", quoted by international agencies. Since the beginning of the war, oil has risen in price by approximately 50%, reports "Al Jazeera".

The hit to consumers' pockets is already being felt. The American Automobile Association recorded an increase in gasoline in the US by nearly 27 cents in just one week, and experts warn that a price of $4 per gallon may soon reappear at many gas stations.

Stock exchanges crashed, then partially caught their breath

In Europe, the panic of investors was reflected directly. The pan-European index "STOXX 600" marked a third consecutive session of decline and closed with a decrease of 0.6% after its weakest week in the last year. The German "DAX" briefly touched a ten-month low, and the stock exchanges in Milan and Madrid fell to their lowest levels in three months.

On "Wall Street", the picture was more volatile. The "Dow Jones" industrial index ended the volatile session with a slight increase, after President Donald Trump signaled that the conflict could head towards a finale. However, "S&P 500" remains in the red since the beginning of the year, measured from the start of military operations, which shows that the nervousness of the markets is far from over.

Political signals without a clear exit strategy

In a statement to reporters on Monday, Trump said the US was "making significant progress" and that the war "will soon end." At the same time, he warned that Iran would be "hit even harder" if it resumed fighting, giving an ambiguous signal – a promise of de-escalation, but also a threat of a new spiral of violence.

In Tehran, power passed to Mojtaba Khamenei, who was appointed as the new supreme leader after the death of his father, Ayatollah Ali Khamenei, in the initial strikes. Analysts define this move as a consolidation of the positions of the hardline wing, which further reduces the chances of a quick political solution to the conflict.

Markets fear a war without an exit

Tony Sycamore, an analyst at "IG", sums up investors' sentiments as follows: "The aggressive market reaction clearly shows that there is no convincing strategy for exiting the escalating conflict in the Middle East. This is no longer a limited operation, but a clash with a huge stake, in which neither of the parties seems ready to back down."

In his words, "the risk of prolonged economic damage is increasing with each passing day." High oil prices hit not only fuels, but also transport, production and inflation as a whole – an expense that ultimately is passed on to households and businesses around the world. While the Strait of Hormuz remains half-blocked, and the political signals are contradictory, the markets will continue to live in "on the edge" mode.