The $150 crude oil warning: US-Iran conflict sends shockwaves through global energy markets

Brent crude rocketed 7.3% to breach $100 a barrel Monday as Washington said it will impose a naval blockade on Iranian ports, threatening to choke off vital energy supplies around the world's most critical oil chokepoint and potentially triggering what one analyst called a "demented" supply crisis.

The dramatic price surge, Brent jumped $6.96 to $102, came as the US military initiated restrictions on all maritime traffic entering and exiting Iranian ports starting 10 a.m. Eastern Time, following the collapse of weekend negotiations in Pakistan aimed at ending the US-Iran conflict.

"It really makes no sense. It should be $140, $150," said Jorge Montepeque, Managing Director at Onyx Capital Group, warning that current pricing fails to reflect the true risk. "The number we saw this morning—$103; 8% increase—is not reflective at all of what could happen if the US really decides to go with this interdiction."

Montepeque said the blockade could eliminate up to 12 million barrels a day from global markets, transforming a regional conflict into a worldwide supply emergency. "This is, in one word: demented," he told Bloomberg Television's Haslinda Amin. "The US is so focused on Iran that they are losing sight of what they are causing to the world. And the pain is in Asia, the pain is in the South Pacific, the pain is in anybody that depends on oil."

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The US Central Command said the blockade would be "enforced impartially against vessels of all nations entering or departing Iranian ports and coastal areas, including all Iranian ports on the Arabian Gulf and Gulf of Oman." Vessels transiting the Strait of Hormuz to non-Iranian ports will not be impeded, though President Donald Trump said Sunday that US forces would also intercept vessels in international waters that had paid tolls to Iran.

The enforcement action followed failed talks in Pakistan, where the US accused Tehran of refusing to curb nuclear ambitions while Iran reportedly demanded control of the strait, war reparations, a broader regional ceasefire including Lebanon, and access to frozen overseas assets.

"The mere threat of enforcement alone has been sufficient to re-price risk, demonstrating how vulnerable oil remains to geopolitical triggers," said Priyanka Sachdeva, senior market analyst at Phillip Nova. "The return to triple-digit pricing, or the jump in a geopolitical risk premium that briefly faded during earlier ceasefire headlines, looks justified."

Traders appeared to be betting the worst-case scenario remains unlikely, Montepeque noted, finding it "too crazy" for both sides of the strait to be blocked—explaining the relatively muted Asian session reaction despite the magnitude of the threat.

The Strait of Hormuz has effectively remained closed since the conflict began, already driving sharp gains in oil and gas prices while raising inflation concerns and growth fears globally. Saudi Arabia said it has restored full pumping capacity through its East-West pipeline to the Red Sea and output from the Manifa field.

If Trump scales back enforcement, oil prices may hover around $100 for the remainder of the year, Montepeque said. But the alternative, a prolonged blockade, could send energy markets into uncharted territory.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)