By Samer Hasn, Senior Market Analyst at XS.com
Oil prices gapped higher at today’s opening by more than 11% for both the WTI and Brent crude benchmarks, though they later retreated by roughly four percentage points.
A volatile mix of extreme anxiety regarding Middle Eastern energy supply chains and guarded optimism that the conflict cannot be sustained much longer is currently shaping the market’s trajectory.
What happened?
Market fears have transitioned into a stark reality with the effective closure of the Strait of Hormuz and the targeting of commercial oil tankers. The Islamic Revolutionary Guard Corps (IRGC) has warned vessels against crossing the waterway, which handles approximately 20% of global crude shipments, and has already confirmed strikes on three tankers in the region.
Energy infrastructure has moved directly into the crosshairs of this escalating conflict. Reuters reports that Aramco’s Ras Tanura refinery in Saudi Arabia was shut down as a precautionary measure following a drone attack, while falling shrapnel from Iranian strikes injured two people at Kuwait’s Al-Ahmadi refinery.
Even in a historically oversupplied market, such severe physical disturbances are difficult to absorb, potentially pushing crude prices toward the $90/bbl level.
What next?
The duration and ultimate cost of this war will be determined by specific variables, including the depth of U.S. and Israeli interceptor inventories.
According to the Wall Street Journal, the U.S. is rapidly depleting its magazine depth of interceptors and cruise missiles, consuming these precision munitions faster than current production lines can replace them. Military analysts warn that exhausting stocks for THAAD and Patriot systems could compromise American deterrence against other global flashpoints, effectively placing a countdown on the current campaign.
Strategic readiness is further strained by the deployment of the USS Gerald R. Ford, which has now spent more than 250 consecutive days at sea. This far exceeds the standard seven-month Navy deployment window and risks creating a significant “readiness debt” due to delayed maintenance and mechanical degradation. The crew is facing a mounting human toll, characterized by extreme exhaustion, making the carrier’s continued presence a strategic gamble for the administration.
These logistical constraints likely set a hard deadline for Donald Trump to resolve the conflict one way or another in the coming days. While a non-stop aerial campaign over Iran aims to suppress missile launches, the President is also incentivized to avoid a prolonged energy-driven inflation wave. Trump is acutely aware that a spike in U.S. pump prices would necessitate a higher-for-longer interest rate environment, which he desperately wants to avoid.
If a new red line is crossed, which is specifically the targeting of Iranian production and export facilities more severely, we will enter a much darker phase of the war. In such a scenario, $100/bbl would likely be the minimum target as the IRGC would almost certainly retaliate against GCC energy infrastructure with even greater intensity. The worst-case outcome remains a massive oil leak within the Strait, which could halt navigation for months and force a global economic reckoning.
The market is currently betting on a swift resolution, but the margin for error is razor-thin as physical infrastructure begins to burn. If the administration cannot secure a ceasefire before the next wave of refinery strikes, the inflation tax on the American consumer will become a political and economic reality to reverse.
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