Middle East Oil Prices Soar Past $150! Understanding It All: Is Iran's Threat About to Become Reality?

Iran Threatens to Push Oil Prices to $200 per Barrel

It may sound exaggerated, but as the energy crisis continues, this outcome seems more likely than the prediction by U.S. President Trump that oil prices would soon fall back to pre-war levels…

The Israel-U.S. joint war against Iran has entered its third week—and has escalated into a conflict spanning the entire Middle East—but the global benchmark oil index’s response so far has been surprisingly “calm.”

Currently, Brent crude trades around $100 per barrel, up about 65% from the beginning of the year. While this price was hard to imagine a few weeks ago, it remains below the brief peak of nearly $120 reached last week.

Since the conflict began, about one-fifth of global oil supply (roughly 20 million barrels per day), trapped due to the de facto closure of the Strait of Hormuz, should have driven oil prices much higher. This suggests that investors still hold some trust in Trump, betting that the crisis will be quickly resolved and the Strait of Hormuz will reopen soon—whether called “Trump put options,” “TACO trades,” or “buying Trump,” many oil traders seem to be betting that the president can ultimately limit market damage.

“When this is all over, oil prices will fall very, very quickly,” Trump said this Monday.

However, this optimism is increasingly difficult to reconcile with the reality on the ground—whether on the increasingly intense battlefield or in the physical oil markets where supply bottlenecks are spreading.

Overlooked Signals

In fact, physical crude oil markets are sending more and more pressure signals, even though the international benchmark “paper oil” markets have largely ignored these signals so far.

Despite trade disruptions caused by the Iran conflict, Middle Eastern crude benchmarks have surged to record highs, becoming the most expensive crude globally. These benchmarks, used to price millions of barrels of Middle Eastern oil sold to Asia, are pushing up costs for Asian refiners, forcing them to seek alternatives or cut production in the coming months.

S&P Global Platts reports that the spot assessment for Dubai crude for May loading hit a record $157.66 per barrel on Tuesday, surpassing the 2008 high of $147.50 set during the Brent futures spike.

This has caused the Dubai crude premium over swaps to reach $60.82 per barrel, compared to an average premium of just 90 cents in February.

Meanwhile, Oman crude futures hit a record $152.58 per barrel on Tuesday, with a premium of $55.74 over Dubai swaps—up from an average of just 75 cents in February. Oman crude is exported from a terminal outside the Strait of Hormuz.

This surge reflects significant uncertainty in Middle Eastern supply, following multiple attacks on Oman’s oil terminal and the UAE’s major oil export terminal at Fujairah outside the Strait of Hormuz.

Are Brent and WTI Not Reflecting the “Real Market Situation”?

As JPMorgan commodities chief Natasha Kaneva pointed out in a recent report on Tuesday, there is a clear disconnect between the international benchmark crude prices and the supply disruptions in the Middle East.

The core issue is that Brent and WTI are benchmarks at opposite ends of the Atlantic basin, while the current impact is concentrated in the Middle East. Therefore, these benchmark prices are particularly influenced by relatively loose regional fundamentals—U.S. and European commercial oil inventories are ample early in 2026, and overall Atlantic basin supply is relatively sufficient in the short term.

Additionally, expectations of releases from the U.S. Strategic Petroleum Reserve (SPR)—and the imminent partial releases—further alleviate the immediate tightness in Brent and WTI markets.

In contrast, Middle Eastern benchmarks like Dubai and Oman more accurately reflect physical market dislocation. Both are trading above $150 per barrel, highlighting the severity of oil shortages originating from the Gulf region. These Middle Eastern prices are directly affected by export disruptions and thus more effectively reflect marginal supply shortages than Atlantic benchmarks.

Crucially, trade geography exacerbates this dynamic. Most oil transported through the Strait of Hormuz is headed to Asia—before the conflict, about 11.2 million barrels per day of crude and 1.4 million barrels of refined products flowed through the strait to Asia.

As a result, physical shortages and soaring prices are concentrated in the Asian markets, which are most dependent on Gulf oil. In fact, early signs of demand destruction are emerging in Asia as product prices surge and spot crude becomes prohibitively expensive.

JPMorgan notes that time effects further reinforce this divergence. The typical voyage from Gulf Cooperation Council (GCC) countries to Asia takes about 10-15 days, while shipments to Europe via the Suez Canal require nearly 25-30 days, and around 35-45 days if rerouted around the Cape of Good Hope. Therefore, disruptions in Gulf flows will impact Asian markets sooner and more intensely, while Atlantic benchmark prices like Brent and WTI will have longer buffers due to inventory overhangs and slower supply adjustments. U.S. crude exports exceeding 13 million barrels per day will be least affected.

JPMorgan believes that the apparent stability of Brent and WTI prices does not indicate ample global supply. Instead, it reflects temporary buffers created by regional inventory surpluses, benchmark composition, and policy interventions.

In reality, the current crude shortage is a serious problem for refiners, especially in Asia. About 60% of oil imports in the region depend on the Middle East, and the difficulty of finding alternatives and timely supplies is rapidly intensifying. Many countries are making painful adjustments—refiners across Asia are reducing processing rates to conserve dwindling inventories, and some nations have banned exports of refined products as a defensive measure, which could further tighten global markets.

As crude shortages worsen, refined product prices are soaring. Jet fuel prices in Asia are approaching $200 per barrel, close to the $220 high reached earlier this month.

The Crisis Could Spread Further

Ultimately, this crisis may extend beyond Asia.

Data analytics firm Kpler reports that last year, about three-quarters of Middle Eastern jet fuel exports through the Strait of Hormuz—around 379,000 barrels per day—were shipped to Europe, but since the war began, no such shipments have passed through the strait.

Unsurprisingly, jet fuel barge prices at the Amsterdam-Rotterdam-Antwerp (ARA) hub have surged to a record $190 per barrel, surpassing the previous peak after the Russia-Ukraine conflict in February 2022.

A comparison with the Russia-Ukraine crisis may be more convincing.

Before the 2022 Russia-Ukraine conflict, Russia supplied about 30% of Europe’s crude oil imports and a third of its refined oil imports. Fears that Europe would lose access to one of its largest oil producers (Russia’s daily output of about 10 million barrels) drove Brent crude to $130 per barrel after the conflict erupted—even though this worst-case scenario never fully materialized.

According to Morgan Stanley, physical disruptions caused by the Iran war have already exceeded that level by more than three times.

Even if the Strait of Hormuz reopens immediately, relief will not be instant. IEA data shows that since the conflict began, about 10 million barrels per day of Middle Eastern production have been shut in. Restoring these flows could take weeks or even months.

Admittedly, the oil market was relatively well supplied at the start of the Iran conflict, with IEA forecasting a global surplus of about 3.7 million barrels per day. But this excess has been wiped out by current chaos. The IEA announced last week a record release of 400 million barrels from member countries’ strategic reserves to buffer initial shocks. However, drawing down inventories cannot replace new oil deliveries.

In other words, the supply shock in the oil market is real and may persist.

Once the Strait of Hormuz reopens, prices could initially plunge in a relief rally, but given the grim physical market realities, traders should think twice before betting on a quick return to normalcy promised by Trump…