Brent Crude Oil Rises As Middle East Supply Risks Escalate

(MENAFN- DailyFX (IG)) Brent crude oil: Middle East escalation puts global supply at risk

Brent crude oil has surged towards $110 a barrel as an intensifying Middle East conflict threatens to disrupt oil production, infrastructure and shipping across some of the world's most important energy corridors.

Brent futures climbed over 3% on Monday to around $108 a barrel after fresh attacks on Saudi Arabia and shipping in and around the Strait of Hormuz. The latest move extends a sharp recovery from around $70 a barrel in early July, with Brent now around 18% higher than at the start of the month.

The latest escalation comes after a series of increasingly serious attacks on energy infrastructure and tankers. A drone strike forced Saudi Arabia to temporarily shut its East-West oil pipeline, which provides an important alternative route for transporting crude around the Strait of Hormuz. The pipeline has capacity of around 7 million barrels a day, meaning its disruption has added another layer of risk to an already fragile supply system.

At the same time, shipping through the Strait of Hormuz has fallen sharply as vessels face growing security risks. Only four commodity vessels exited the Gulf over the weekend, while ten entered, compared with a 10-day average of around 14 vessels a day. Before the current war began, around 120 vessels passed through the strait each day and the waterway handled roughly 20% of global crude oil and LNG supplies.

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Strait of Hormuz becomes the key oil-market battleground

The Strait of Hormuz remains the single biggest source of upside risk for crude prices.

Iran and the US have been involved in an escalating conflict since February, with shipping increasingly caught in the crossfire. Iranian forces have attacked vessels while the US has imposed restrictions on Iran-related shipping, contributing to a sharp reduction in Iranian crude exports.

Diplomatic efforts to restore safer passage through the strait have also suffered a setback. A planned meeting between Iran and Gulf states in Oman aimed at establishing a temporary arrangement for maritime traffic has been postponed, reducing hopes of an imminent de-escalation.

For oil traders, this matters because even without a formal closure, a significant reduction in tanker traffic can effectively remove barrels from the international market.

The result is a growing risk premium in Brent prices as traders attempt to price the probability of further disruption rather than simply current physical supply.

Saudi Arabia faces a second supply shock

The threat to Saudi Arabia has become increasingly important.

The kingdom's East-West pipeline is designed specifically to reduce its dependence on the Strait of Hormuz by transporting crude from the country's eastern oil fields to Red Sea export terminals. Its temporary shutdown therefore removes one of the main alternative routes available to Saudi crude.

The pipeline disruption is particularly significant because it comes alongside attacks on Saudi energy infrastructure by Iran-aligned forces. Houthi attacks in Yemen have also threatened Saudi facilities and shipping routes.

This creates a potential double squeeze for the oil market: tankers face greater risks travelling through the Gulf while an alternative overland route is also unavailable.

The longer these disruptions persist, the greater the probability that physical shortages begin to emerge outside the region.

Red Sea and Bab el-Mandeb risks are rising

The supply threat is no longer confined to the Strait of Hormuz.

Iran-backed Houthi forces in Yemen have intensified their activity around the Red Sea and Bab el-Mandeb, another strategically important shipping corridor connecting the Gulf of Aden with the Suez Canal.

The Houthis have reportedly seized strategically located islands in the southern Red Sea, increasing their ability to threaten commercial shipping.

For oil markets, this raises the possibility of disruption along several routes simultaneously.

Even when crude itself continues to flow, higher insurance costs, longer shipping routes and soaring tanker rates can materially increase the delivered cost of oil. Tanker rates have reached record highs as shipping companies face heightened risks across the region.

For traders monitoring the broader impact on commodity markets, the simultaneous disruption to multiple shipping routes represents one of the most significant supply-side shocks seen in recent years.

Brent has already undergone a dramatic repricing

The speed of the latest rally highlights how quickly the market's assessment of the conflict has changed.

Brent traded below $100 for much of the summer as investors expected the US-Iran conflict to remain contained and anticipated that Middle Eastern supply would gradually recover. That view began to change in early September as fighting intensified.

The latest move to around $108 represents another significant step higher.

Brent nevertheless remains below this year's earlier peak of around $115 reached in April, demonstrating that traders have not yet priced a complete loss of Middle Eastern supply.

Oil inventories provide an additional source of support

The market is entering this latest escalation with a considerably smaller safety cushion.

The US Energy Information Administration estimates that global oil inventories fell by an average of 3.9 million barrels a day during the second quarter of 2026 and expects another 3 million barrels a day draw in the third quarter. It forecasts a further 1.7 million barrels a day decline in the fourth quarter.

This is important because inventories normally provide the first line of defence against a supply disruption.

With stocks already being depleted, prolonged interruptions to Middle Eastern exports could therefore have a more pronounced impact on prices than they would in a well-supplied market.

The EIA currently expects Brent to average around $90 a barrel during the second half of 2026, although that forecast assumes Middle Eastern flows gradually recover and shut-in production restarts.

The inflation threat is returning

The surge in crude prices is also becoming an increasingly important macroeconomic story.

Oil at above $100 a barrel raises transportation and energy costs and could feed into headline inflation across major economies. This is particularly problematic for central banks because higher energy prices can complicate efforts to bring inflation back towards target.

The latest oil surge comes just as major central banks are reassessing the outlook for monetary policy with markets facing the prospect of further rate increases as higher energy costs add to inflationary pressure.

For consumers, the most immediate impact is likely to be felt through petrol, diesel, aviation fuel and heating costs.

For businesses, higher transportation and energy expenses could squeeze margins, particularly in sectors such as airlines, logistics, chemicals and manufacturing.

The knock-on effects of higher energy prices are also worth monitoring across related commodity markets, including gold, which has historically benefited from both inflationary pressure and geopolitical uncertainty.

What happens if the Strait of Hormuz remains disrupted?

The next major test for Brent will be the duration rather than simply the severity of the disruption.

If attacks remain sporadic and diplomatic efforts eventually restore safe passage through Hormuz, the current risk premium could unwind rapidly. Brent could then retreat towards the levels seen before the latest escalation.

That possibility has already been demonstrated this year: when expectations of improved Middle East supply emerged, oil prices fell sharply as traders priced a reduction in the geopolitical premium.

However, a prolonged disruption would present a very different scenario.

If tanker traffic through Hormuz remains severely restricted while Saudi Arabia's East-West pipeline is unavailable, the market could increasingly focus on actual lost barrels rather than simply geopolitical risk.

That would potentially push Brent significantly higher, particularly if the disruption coincides with further attacks on production facilities or shipping.

Brent crude oil outlook

Brent crude has entered a much more bullish phase as the Middle East conflict increasingly threatens physical oil flows rather than simply creating geopolitical uncertainty.

The move towards $110 means the market is now approaching the highs seen during the earlier phase of the conflict, while the deteriorating shipping situation suggests the risk premium could remain elevated.

For traders, the key technical resistance area to watch is made up of the March-to-May highs at $113.49-to-$113.73, a rise and daily chart close above which may trigger stop orders and a swift move towards the $120 region.

Brent Crude daily candlestick chart Source: TradingView

Conversely, any credible agreement between Iran, the US and Gulf states that restores safe shipping through Hormuz could trigger a sharp reversal from around that resistance area.

How to trade Brent crude oil

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