Oil holds near multi-year highs as U.S. issues ultimatum to Iran

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Oil holds near multi-year highs

Highlights

Brent and WTI are holding around $112 and $98, respectively, staying near the highs of 2022.
The main driver of the market is the risk of escalation around the Strait of Hormuz, which carries about 20% of the world’s oil supply.
The U.S. ultimatum and threats of Iranian retaliation are supporting a high geopolitical risk premium.

Strait of Hormuz remains the main factor for oil prices

According to Bloomberg, the market is focused on a single critical point in global energy — the Strait of Hormuz, through which about one-fifth of the world’s oil supplies pass. Any threats to shipping in this area immediately affect prices, and the current situation is no exception. As of March 23, Brent crude was holding steady around $112 per barrel, while WTI hovered around $98, following a brief surge above $120 for Brent.

Further pressure on the market comes from ongoing strikes on regional facilities and an effective blockade of the strait by Iran. Analysts warn that the risk of further supply disruptions remains high, even as the market temporarily stops moving in one direction.

Geopolitics outweighs regular market factors

Current price fluctuations are explained not by fundamental demand or seasonality, but by the threat of physical supply reductions. Since the conflict began, Brent has already increased by 50% compared to February levels, and the rise in energy prices is exacerbating inflationary risks while reducing the likelihood of an imminent easing of U.S. monetary policy.

At the same time, there remains a duality of expectations in the market. On the one hand, threats to energy infrastructure and the strait support a risk premium. On the other hand, some market participants believe Washington may try to stabilize the market by easing sanctions on Iranian oil or implementing other measures to increase supply. This is what keeps prices from spiking higher.

Current oil prices based on provided image

According to the provided image, the current prices are:

WTI Crude — $98.98 per barrel, change +0.76%;
Brent Crude — $112.76 per barrel, change +0.51%.

What the oil market is pricing in now

Oil prices currently reflect not only the immediate damage but also the expectation that the crisis could drag on. As the mutual ultimatums from the U.S. and Iran remain at the heart of the conflict, oil is likely to remain highly sensitive to any statements from both sides.

In an earlier report, we noted that oil prices fall as U.S. and allies seek to boost supply and secure Strait of Hormuz.

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