Oil rises as expanding U.S.- Israeli conflict with Iran elevates supply risks

If there is one place where there is sufficient uncertainty in the market about supply and demand in oil and energy, it is the geopolitical instability in the Middle East, which is exactly what the market is experiencing in early March 2026 and is driving crude oil prices to their highest levels in the last several months due to the US Israel Iran conflict and its impact on oil. 

Crude oil price benchmarks in the international market have increased by almost 5 % and do not respond to supply chain problems or the instability caused by the conflict in the Middle East. The instability clearly shows the degree to which the flow and security of energy is dependent on the international relations of the country.

The Middle East conflict escalated with the US and Israeli attacks on Iranian locations on 28 February 2026. These attacks were originally called proxy attacks. These attacks have been described as the first in a series of attacks and as a result created a new and larger situation with an increased level of concerns about crude oil supply risks from one of the world's most important oil supply sources. One of the world's most important sources of supply is Iran, which is located strategically at the Strait of Hormuz, and it’s 20 % of the world's oil supply.

The Roots of the US-Israel-Iran Conflict

As an investor in commodities or a consumer who pays for petrol, it is important to understand the dynamics of the oil market. We will analyse the roots of the crisis, the oil price surge affecting traders, unpack oil price forecast 2026, analyse oil price increase news, and analyse the crude oil supply risk affecting the oil market.

We will also analyse the most recent news regarding the supply of crude oil, and the risk regarding the supply of crude oil.

As a result of the complexities of the conflict and the politics of other nations, it is imperative to understand the impact of the conflict involving the US, Israel, and Iran and oil. Each of them will impact and have an effect on the market.

Here is a breakdown of the US, Israel, and Iran conflict and the oil impact.

The Middle East's roots of geopolitical tensions have been the proxy battle of Iran supporting Hezbollah and control of nuclear weapons. The US supported the democracy of Israel, and on every front, it has given control of oil to the US to implement a maximum pressure strategy to control, via policy, Iran's oil exports, which were reduced to a minimum of 1 million barrels per day, as compared to 2.5 million barrels per day before 2018.

Moving forward to 2026, Iranian drone strikes on US naval vessels and Israeli assets in the Persian Gulf resulted in rhetoric and actions. Joint Israeli and US airstrikes occurred on 28 February, and targeted Iranian oil and military structures on the Strait of Hormuz. This was an attempt to weaken Iran’s retaliation. Iran’s response was to launch missiles and threaten to mine the Strait, where 21 million barrels of oil would be at risk of crossing.

This is not isolated. This echoes the Soleimani assassination and 2019 tanker attacks. Many state actors are playing their role in the crisis and suffering palpable and reported civilian casualties on every side. It is not the loss of human life that is driving the people, economies, and markets insane, but the tragedy of the collateral damage.

Energy-wise, Iran's importance should be obvious. As the third-biggest OPEC producer, Iran's instability leads to instability with Russia's war against Ukraine, which has supply issues. Therefore, the US-Israel-Iran conflict oil impact involves more than oil; it reveals weaknesses in a system that has an opaque 100 million barrels consumed daily, little spare capacity, and a lot of friction.

The Oil Price Surge: Analysis of the Years of War and Growing Frustration

The rise in oil prices has been incredible in the last week. Brent crude, OPEC's world oil marker, increased by 9% after the first battle, closing above $85 per barrel for the first time in a year, and the West Texas Intermediate (WTI) increased by 7%, which shows the equal response of the world market. This is an indication of oil traders estimating what oil prices will be in the future, not for speculation, as it is fuelled by geopolitical events.

Why the increase? The changing war system provides clarity. Oil traders see a 10% to 15% risk of the Strait of Hormuz being closed. Based on suspicion, history has shown that the 1979 Iranian Revolution and 1990 Gulf War caused prices of oil to double and triple. Oil prices, with the assistance of computers, die a natural and legal trading death. Oil prices quickly respond to news in Tehran.

Dealing With the Risks Linked With Crude Oil Supply: The Strait of Hormuz

The Strait of Hormuz involves the greatest risk, and most of this turmoil revolves around the crude oil supply risk. The strait is the world's most important oil transit chokepoint and is only 21 miles wide at its narrowest. It funnels oil from Saudi Arabia, the UAE, Iraq, Iran, and Kuwait. If there were to be a blockade or some mining of this strait, global supply would lose 7 million barrels per day, which represents an elimination of total production from both Venezuela and Libya.

To us, this is not an exaggerated threat. Iran is preparing for asymmetric warfare with speedboats, drones, and mines. Updated satellite imagery showing an increased presence of enemy vessels on the scene has increased the level of crude oil supply risk. The Fifth Fleet has increased patrols in this area, and although there will be an increase in aggression from enemy vessels, at present, this exceeds operational capabilities.

The effects of a blockade would not be limited to the strait. Buyers of Iranian crude oil, which are currently sanctioned, will be forced to seek alternative sources. This could result in an increase in spot prices for Urals crude oil from Russia or the sour grades of crude oil from Canada. Additionally, insurance for tankers in this area has increased by 300%, which, in turn, has negligible shipment and supply levels. This creates an already existing self-fulfilled supply collapse.

Mitigation efforts are beginning. The IEA is poised to deploy a mere 60 million barrels from strategic reserves, a flex for a potential haemorrhage. Saudi Arabia is also an option with regard to additional supply as they could add 2 million bpd; however, it will take weeks to tap that option. For consumers, potential crude oil supply risk translates into higher heating bills this winter and further constrained manufacturing margins.

Geopolitically, this risk sheds light on a sobering reality: diversification is important. While Europe’s pivot to LNG after the Ukraine war has mitigated some of the hurt, in the case of Gulf oil, Asia is still exposed. Renewables are a must for policymakers to expedite; however, for the time being, all must protect against crude oil supply risk.

Global Oil Market News: Ripples Across Trade and Economies 

The global oil market news for this week reads like a thriller: disrupted shipping routes, plummeting stock futures, and unstable currencies. The scope of this war is far-reaching; the negative impacts on international trade are severe. Container rates from Asia to Europe have increased 15% as ships are forced to take alternative routes, Gulf, and the result is a significant increase in both time and money to operate the European supply chain.

From an economic perspective, the U.S. is facing two simultaneous problems. Rising oil prices result in an increase in inflation, potentially leading to a 0.3% rise in core PCE, while also boosting the profits of shale producers. Trump’s newly victorious administration is promoting energy independence, but interdependence is making a comeback. For Europe, reliance on Russian gas has been supplanted by gas imports from elsewhere, as the rising price of Brent oil functions as an increase in tax for EU households.

Worse news is on the horizon for emerging markets. India and China are likely to witness a significant expansion of trade deficits, with imports increasing by about $50 billion if oil prices hit $90. This, combined with the depreciation of the rupee and the yuan, is expected to raise food prices as it also elevates the cost of fertilisers.

Conclusion

Record exports of U.S. LNG to Europe have stabilised gas prices. This, along with investments from tech companies like Google in nuclear energy for data centres, will reduce oil demand in the long term. However, volatility remains a constant, as the OVX volatility measures have reached the peaks of 2022.

The current situation in the global oil market serves as a stark reminder that energy is far more than the fuels that power vehicles; it is the very essence of interconnectedness in the world.

(Source: https://www.aljazeera.com/news/2026/3/2/oil-prices-rise-sharply-after-us-israeli-attacks-on-iran )

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