Oil shock threat looms as US strikes Iran

Global markets are heading into a high-risk open on Monday after US President Donald Trump confirmed that American forces have begun major combat operations against Iran, dramatically escalating tensions across one of the world’s most systemically important energy corridors.

Brent crude closed the week near seven-month highs around $73 per barrel after climbing roughly 16% since the start of the year. Energy traders are now modelling significantly wider ranges for next week, with several scenarios pointing toward $80 oil if supply flows face disruption or credible threat.

Roughly 20% of globally traded crude and a similar proportion of liquefied natural gas passes through the Strait of Hormuz each day, equating to around 13 million barrels of oil moving through the channel daily.

Nigel Green, founder and chief executive of deVere Group, one of the world’s largest independent financial advisory organizations, says the scale of risk embedded in that geography will dominate asset pricing.

“Energy markets are entering a repricing phase driven by operational risk rather than speculation.

“When close to one fifth of global crude flows transit a single maritime corridor, even a marginal probability of disruption demands a higher structural risk premium.

“Oil doesn’t need to be physically halted for prices to move sharply. Insurance costs, shipping reroutes and precautionary stockpiling alone can tighten supply expectations.”

Spare production capacity globally remains limited. OPEC spare capacity is concentrated in a handful of Gulf producers, while commercial inventories across OECD economies sit below long-term averages.

 A sustained disruption of even 1 million barrels per day would represent roughly 1% of global supply, enough to shift balances in a market already priced for moderate growth in demand.

The deVere CEO explains that investors must prepare for rapid cross-asset transmission.

“Equities, bonds, currencies and commodities will adjust simultaneously.

A $10 to $15 move higher in crude would place renewed upward pressure on headline inflation across the US, Europe and Asia.

“Central banks that were expected to consider rate reductions later this year will face a more complicated calculus if energy feeds back into consumer prices and inflation expectations.”

US Treasury yields have already shown sensitivity to geopolitical risk, with safe-haven flows compressing longer-dated yields in recent sessions. Gold has strengthened as investors hedge against tail risk.

The US dollar and Japanese yen are attracting defensive allocations, while high-beta emerging market currencies are likely to face renewed selling pressure if volatility accelerates.

Nigel Green adds: “Markets will focus on duration and containment. A short, tightly defined military campaign would likely trigger a spike in oil and a brief risk-off move in equities, followed by stabilisation once shipping routes are confirmed secure.

“A multi-week conflict that raises credible threat to Hormuz would amplify volatility and sustain higher energy prices into the second quarter.”

Asian economies face particular exposure. Countries such as India, South Korea and Japan rely heavily on Gulf energy flows. India alone sources close to half of its crude imports via the Strait of Hormuz. Higher oil prices would widen current account deficits, pressure local currencies and complicate monetary policy across the region.

“Energy importers in Asia will feel immediate stress if crude holds above $80,” Nigel Green says.

“Currency weakness combined with elevated fuel costs tightens financial conditions without a single rate move.

“Equity markets in those economies, particularly in transport, manufacturing and high-beta sectors, are vulnerable to swift repricing.”

Corporate earnings expectations could also shift. Airlines, logistics providers and industrial manufacturers are especially sensitive to sustained fuel cost increases. Input cost inflation would compress margins unless companies successfully pass through higher prices to consumers.

Nigel Green concludes: “Next week opens with markets confronting hard geopolitical risk layered onto an already fragile macro environment.

Oil, shipping insurance rates, sovereign bond yields and volatility indices will provide the earliest signals of direction.

“Investors should expect sharp intraday swings, elevated cross-asset correlations and a decisive test of risk appetite.

“Clarity on the trajectory of the conflict will determine whether this remains a contained energy premium or evolves into a broader inflationary and growth challenge for the global economy.”