From Surge to Dip: Oil Volatility Reflects Middle East Risks

Global oil markets are experiencing significant volatility, with prices initially surging before dipping, a clear reflection of the heightened geopolitical risks emanating from the Middle East. Oil prices jumped over 5% on Sunday to a five-month high of $81.40 following the Iranian parliament’s vote to consider closing the Strait of Hormuz in retaliation for a US attack. However, Brent crude later fell nearly 1% on Monday, settling just over $76 a barrel, indicating the market’s fluctuating assessment of the immediate threat.
The underlying concern remains the potential closure of the Strait of Hormuz, a crucial shipping channel for a fifth of the world’s oil. Such a move would create an unprecedented oil supply shock, leading to sharply higher energy prices, increased inflation, and a likely slowdown in global economic growth. The International Monetary Fund’s chief, Kristalina Georgieva, has explicitly warned that US strikes on Iran could cause considerable damage to the global economy.
Despite the recent dip, the potential for extreme price hikes persists. Goldman Sachs estimates that oil could hit $110 a barrel if Hormuz flows are halved for a month and then remain 10% lower for the subsequent eleven months, highlighting the severe economic consequences of a prolonged disruption. This forecast underscores the fragility of global energy supply chains.
In response to the escalating tensions, US Secretary of State Marco Rubio has called any closure of the strait “economic suicide” for Iran and has urged China to use its influence, given its heavy reliance on the waterway. Analysts at RBC Capital Markets are also advising caution, warning of “clear and present risk of energy attacks” from Iranian-backed militias and emphasizing that the situation remains fluid, as evidenced by two supertankers reportedly changing course in the strait.