The Shadow of High International Oil Prices Looms Overhead

AI Question · How do US-Iran military tensions affect short-term fluctuations in global oil prices?

As the situation in the Middle East continues to tighten, crude oil prices keep rising. Several institutions have already raised their oil price forecasts for the second time in less than two weeks, citing ongoing disruptions in the Strait of Hormuz and increasing structural risks to global supply. These are key factors leading them to believe that “high oil prices will persist longer.” Looking at a longer-term perspective, even if the Strait of Hormuz issue is eventually resolved, geopolitical risk premiums in oil prices may not disappear quickly. This is because multiple Middle Eastern countries have been forced to cut production, regional energy facilities are continuously damaged, and restoring pre-war capacity will take time. The greater the destruction caused by the conflict, the longer the recovery cycle.

Standoff Between Parties

On March 23, Brent crude briefly rose above $109 per barrel, nearly a 3% increase. WTI crude rose over $101 per barrel, up more than 3%. On the macro front, U.S. President Trump posted on social media on March 21 that if Iran fails to “completely open” the Strait of Hormuz within 48 hours and allow all ships passage, the U.S. will target Iran’s power plants.

In response, Iran’s Islamic Revolutionary Guard Corps issued a statement on March 23 emphasizing that if Iran’s power grid is attacked, Iran will retaliate in kind, targeting Israeli power plants and U.S.-powered facilities supplying U.S. military bases in the Middle East.

On the same day, Iran’s Defense Council issued a statement saying that ships from non-belligerent countries wishing to pass through the Strait of Hormuz must coordinate with Iran. The statement also stressed Iran’s commitment to “reciprocal retaliation,” but also warned of “immediate and devastating responses” to attacks on power plants and energy infrastructure.

Additionally, Iran’s Defense Council emphasized that if Iran’s coast or islands are attacked, it will cut off Gulf shipping lanes and communication lines, and deploy explosive mines at sea, including from Iran’s coast. On March 23, Iran’s armed forces announced that the Iranian Navy’s air defense system shot down two U.S. attack drones near Bandar Abbas port in the Strait of Hormuz.

The statement noted that the drones were detected and intercepted accurately before attempting to attack Iranian naval forces.

Analysts point out that this drone shoot-down further heightens market concerns over supply disruptions. Militarized friction near the Strait of Hormuz could lead to significant increases in shipping insurance costs and transit times, causing ongoing disruptions to the global energy supply chain.

However, later that day, the situation reversed. Trump posted on the social media platform “Truth Social” that “the United States and Iran have had very good and productive talks over the past two days.” Trump said he had instructed a five-day pause on all military strikes against Iran’s power plants and energy infrastructure, contingent on successful ongoing meetings and discussions.

Following the news of U.S.-Iran talks, oil prices declined. As of 19:30 Beijing time on March 23, WTI crude fell 12.96% to $85.50 per barrel; Brent crude fell 13.28% to $92.275 per barrel. However, according to Iran’s Fars News Agency citing sources, “Iran and the U.S. are not communicating directly, nor through mediators.”

$100 Could Become the “New Bottom”

Among all industries, the energy sector is undoubtedly the most directly involved in this conflict. “The biggest crisis in history,” as Saudi Aramco CEO Amin Nasser described the current state of the Middle Eastern oil and gas industry.

An CFO of a U.S. energy company revealed that the company is currently modeling three different scenarios: first, the Strait of Hormuz resumes normal navigation by the end of March; second, it recovers around mid-year; third, the worst case, the strait remains closed until the end of the year.

Scott Kirby, CEO of United Airlines, said the company is preparing for oil prices at $175 per barrel and assumes that prices could stay above $100 until 2027. He admitted this forecast may not ultimately prove true, but given the current situation, companies must at least consider it a realistic possibility in their planning.

Research from DBS Group indicates that with ongoing Middle East conflict, further investments in alternative oil sources in Asia could be risky. If the conflict persists longer, oil prices could remain above $100 per barrel for an extended period, possibly rising to $150 or higher within the next two quarters. Analysts recommend continuing to invest in upstream and integrated oil companies but also caution that further large-scale increases could carry risks.

“With production and exports severely limited, investors are highly sensitive to any threats that could hinder post-conflict recovery,” said BMI analysts. They suggest that if the conflict continues, Brent crude could reach $110–130 per barrel within the next one to two weeks.

Goldman Sachs also significantly raised its oil price forecasts: expects Brent crude to average $110 per barrel in April (up from $98), and U.S. crude to average $98 in March and $105 in April. Goldman assumes that the flow through the Strait of Hormuz will only sustain normal levels at 5% for a prolonged period, with a gradual recovery after six weeks. Analysts believe prices will continue to rise during this period until investors are convinced that long-term disruptions are unlikely.

Reshaping the Energy Market

Currently, the market is eager to find oil and gas sources outside the Middle East. Thai Energy Minister Oodhop Rerawan previously stated that the government plans to purchase crude oil from West Africa and the U.S., and accelerate diversification of imports to reduce dependence on the Middle East.

For countries relying on oil and gas imports, diversification has always been key to energy security. However, after the Russia-Ukraine conflict in 2022 and subsequent sanctions by the U.S. and Europe on Russian oil and gas, options have decreased. For example, Europe has been reducing its dependence on Russian energy. By 2025, Russia remains the third-largest oil producer, with a daily output of 9.11 million barrels.

Data released by Japan’s Ministry of Economy, Trade and Industry in February shows that nearly 96% of Japan’s imported crude oil comes from the Middle East, the highest since records began. During the 1970s oil crisis, Japan’s dependence on Middle Eastern oil was between 70% and 80%. Japan has long sought diversification to spread risks, but after the Russia-Ukraine conflict, it has become even more dependent on Gulf countries. Similarly, South Korea also imports about 70% of its oil from the Middle East.

Chen Shouhai, professor at China University of Petroleum (Beijing) and director of the Oil & Gas Policy and Legal Research Center, believes that after the Russia-Ukraine conflict in 2022, Western sanctions on Russian oil triggered a substantial reshaping of the international oil trade pattern. However, the impact of this war on the global oil and gas market differs fundamentally from the Russia-Ukraine conflict. Its effects are mainly short-term and will not alter the existing trade structure. The central role of Middle Eastern oil and gas in the global supply chain will not be fundamentally shaken by this short-term conflict, but long-term influence will gradually weaken with the global energy transition.

“Market volatility caused by this war is consistent with previous oil crises. High oil prices and supply security risks will further accelerate countries’ energy transitions, increasing the share of clean and renewable energy, optimizing energy consumption structures, and fundamentally reducing reliance on traditional oil and gas. Meanwhile, countries will continue to diversify their oil and gas import sources to mitigate geopolitical risks,” Chen said.

Beijing Business Daily Reporter Zhao Tianshu