Oil prices rocketed above $100 a barrel for the first time since Russia’s invasion of Ukraine in 2022 on Sunday as the ongoing US military campaign against Iran strangled one of the world’s most critical energy bottlenecks and forced major Gulf producers to dramatically cut production.
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U.S. benchmark West Texas Intermediate rose 17%, or $15.32, to $106.22 a barrel by Sunday, while global benchmark Brent crude gained 15%, or $14.28, to $106.92. Later in the day, US oil prices rallied more than 23% to trade above $111 a barrel. The milestone means oil has effectively doubled in the three months since its December low – a pace of appreciation unmatched in the history of the futures market since 1983.
Trump says oil will drop “rapidly” once Iran’s nuclear threat is removed
Shortly after prices breached the psychologically significant $100 mark at the start of Sunday’s evening trading session, President Donald Trump took to Truth Social to address rising energy costs and, in particular, offer a timetable for relief.
“Short-term oil prices that will fall rapidly once the destruction of the Iranian nuclear threat is over is a very small price to pay for US and world security and peace,” Trump wrote. “ONLY FOOLS THINK DIFFERENT! President DJT.”
The post was notable for both its defiant tone and the implicit signal that the administration views the price shock as temporary and directly tied to the duration of the military campaign, framing the energy crisis as an acceptable cost to eliminate what it describes as an existential security threat.
The closure of the Strait of Hormuz caused a historic supply shock
The accelerating cause of the price spiral is the effective closure of the Strait of Hormuz, a narrow waterway through which approximately 20% of the world’s oil consumption is exported. Iran’s threats against commercial tankers have made insurance companies and shipping companies reluctant to go through the passage, causing a cascading supply disruption that has left Gulf producers with oil they can’t move and storage facilities quickly filling capacity.
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The consequences for global production were severe. Iraq, OPEC’s second-biggest producer, saw production from its three main southern oilfields drop by 70% to 1.3 million barrels a day from 4.3 million barrels a day before the conflict broke out, according to three industry officials who spoke to Reuters on Sunday.
Kuwait, OPEC’s fifth-largest producer, on Saturday announced preemptive cuts in both production and refining output, citing what the state-run Kuwait Petroleum Corporation described as “Iranian threats to the safe passage of ships through the Strait of Hormuz.” The corporation did not specify the extent of the reduction.
The United Arab Emirates, OPEC’s third-biggest producer, said on Saturday it was “carefully managing offshore production levels to address storage requirements”, with state energy company ADNOC noting onshore operations continued as normal.
OPEC producers are running out of storage as tankers pile up
Cutting production from Iraq, Kuwait and the United Arab Emirates is not so much a strategic choice as a logistical necessity. With tankers unable or unwilling to pass through the strait, oil has nowhere to go and storage infrastructure across the gulf is quickly filling up. The result is a self-reinforcing supply crisis: the longer the waterway remains closed, the more producers are forced to withdraw, and the higher prices rise on world markets.
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The last time oil climbed above $100 a barrel, the catalyst was Russia’s invasion of Ukraine in February 2022. That episode turned out to be relatively brief. Whether the current increase follows a similar trajectory depends almost entirely on how quickly and on what terms the US-Iran conflict is concluded.
Iran Names New Supreme Leader As War Continues
On the Iranian side, the Islamic Republic has hinted at continuity of leadership, with reports suggesting that Mojtaba Khamenei, son of Ayatollah Ali Khamenei, has been named the country’s new supreme leader. The development did not indicate that Tehran is moving toward a diplomatic solution, even as economic pressure is mounting on both sides.
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For U.S. consumers and businesses, the trajectory of oil prices in the coming weeks will depend on whether Trump’s prediction that prices will fall “rapidly” once the Iranian nuclear threat is neutralized proves correct, or whether the protracted conflict spreads the energy shock into a broader economic reckoning.
