[Market Brief] Middle East Situation Out of Control: Four Key Turning Points After Oil Prices Break $100!

What we want you to know:

As the US-Iran war enters its second week, the conflict shows no signs of easing and continues to escalate. Brent and WTI futures prices have both risen to triple digits, and market concerns about inflation are rapidly intensifying. Global stock markets are also under pressure. Therefore, following last week’s quick report on Middle East developments, we are providing an updated overview of the latest US-Iran conflict, comparing it with the 2022 Russia-Ukraine conflict’s impact on the markets, assessing potential future trends in inflation and interest rates, and highlighting four key developments to watch.

Key points:

2. US-Iran Situation Update: The conflict is increasingly entering a “survival mode” pessimistic scenario, with energy production facilities targeted, the Hormuz Strait nearly shut down, and Brent and WTI oil prices both surpassing $100, entering a disorderly surge phase.

3. 2026 US-Iran War vs. 2022 Russia-Ukraine War: Although both involve supply shocks, there are three major differences that provide some buffer for this impact compared to the Russia-Ukraine conflict.

4. Looking Ahead: The extent of inflation and global demand impact from this oil price surge depends on the duration of the conflict. We highlight four major concerns that will determine whether the Middle East conflict turns into a prolonged war!

Given the ongoing escalation of the US-Iran war, we are consolidating related content under this category: Blog – US-Iran War!

1. US-Iran Gradually Moving into “Survival Mode,” Oil Prices Break $100 for the First Time in Four Years!

Hormuz Strait: You Shall Not Pass!

The most critical energy chokepoint in the market—Hormuz Strait, which handles over 20% of global oil shipping trade—sees about 100 ships passing daily on average. However, Bloomberg data shows that last week only 6 oil tankers and 1 LNG vessel left the Persian Gulf. As mentioned in our recent quick report, shipping in the region has effectively halted due to factors such as shipping companies suspending operations in the Gulf, tanker chartering costs soaring (>USD 500,000/day), Lloyd’s / London P&I clubs canceling war risk insurance, and GNSS signal interference/deception. This has led to actual disruptions in regional shipping, aligning with the pessimistic scenario we discussed in the previous report.

Because exports through the Hormuz Strait are nearly blocked, Middle Eastern oil producers are facing a critical point of “being forced to cut production” due to storage capacity limits. According to energy consultancy Kpler, the buffer days for oil storage are extremely tight: Iraq has less than 5 days, while Saudi Arabia and the UAE have about 20 days remaining. We are also beginning to see signs of production cut pressures, such as Iraq’s Rumaila field (1.5 million barrels/day) and Kuwait (2.5 million barrels/day) announcing reductions. Although Saudi Arabia and the UAE have alternative pipelines, ADNOC (Abu Dhabi National Oil Company) has indicated it is starting to “manage” offshore field capacities to cope with storage needs, showing reserves are gradually depleting. The Yanbu port on Saudi Arabia’s west coast near the Red Sea has a processing capacity of only about 5.5 million barrels per day. Overall, the daily Middle Eastern crude oil flow of up to 8.1 million barrels (about 8% of global supply) may face supply loss risks.

Neighboring Middle Eastern Countries Are Not Safe Either; Energy Infrastructure Still Targeted

Unlike the June 2025 Iran-Israel conflict, this time even energy infrastructure is not spared. The table below summarizes Iran’s recent week of attacks, including over 5 international oil tankers, Saudi Ras Tanura refinery, Qatar Ras Laffan LNG export facilities, and commercial ports in the UAE/Oman. The US-Israeli coalition also carried out weekend airstrikes on multiple energy infrastructure sites in Tehran, including large oil depots and military refineries in Shahram, Shahr Rey, and Noubarnia. Axios reports that the Trump administration is considering controlling Harek Island, which accounts for 90% of Iran’s oil exports. Disruption there could further impact approximately 1.5 million barrels per day, primarily affecting Chinese refineries.

Timeline of Major Events: Oil Price Milestones

Researcher Summary:

As the US-Israel-Iran war reaches its tenth day, the market is increasingly aware of the conflict’s scale and prolonged timeline, exerting significant upward pressure on oil prices: After Asian markets opened on March 9 (Monday), oil prices surged again, with Brent and WTI approaching $120 per barrel, surpassing $100 for the first time in nearly four years. The surge was only tempered after the Financial Times reported that G7 countries would coordinate to release 300-400 million barrels from strategic reserves (SPR).

We believe the market is in a panic-driven disorder: The Oil Volatility Index (OVX) broke above 100—an extreme level only seen during the 2008 financial crisis and the 2020 pandemic crash. The call skew (option skewness) is significantly right-biased, indicating collective hedging against upside risk. Once prices breach key levels, market makers mechanically initiate “Delta hedging,” triggering accelerated price spikes similar to the sharp volatility seen in gold and silver at the end of January. Additionally, the deep backwardation structure with a front-month/back-month spread of $24 per barrel reflects extreme concern over “immediate supply disruptions.” We will discuss the actual impact of the US-Iran conflict in the next section.

2. Market Analysis: 2026 US-Iran War vs. 2022 Russia-Ukraine War

The current US-Israel-Iran conflict has triggered full-scale Middle East warfare, naturally reminding markets of the 2022 Russia-Ukraine war, which reignited inflation fears. We compare the current situation with the previous conflict, summarizing similarities and differences.

Oil Supply Shock, Hormuz Strait Impact More Severe Than Russia-Ukraine!

In 2022, Russia was a major global energy supplier, accounting for over 10% of oil and 15% of natural gas production. The Russia-Ukraine war caused energy prices to surge sharply: from February 2022 to the peak that year, Brent crude and Dutch TTF natural gas futures rose over 40% and 330%, respectively.

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Click questions to have MM AI answer you

What is the background and current situation of the US-Iran war?
💡 As the US-Iran war enters its second week, the conflict continues to escalate. Brent and WTI futures prices both rise to triple digits, market inflation fears intensify, and global stocks come under pressure. The conflict is increasingly entering a “survival mode” pessimistic scenario, with energy infrastructure targeted and the Hormuz Strait nearly shut down.

What impact does the Hormuz Strait disruption have on oil supply?
💡 The Hormuz Strait previously handled over 20% of global oil shipping trade. Shipping has now effectively halted, pushing Middle Eastern oil producers to a critical point of “being forced to cut production.” Daily flows of up to 8.1 million barrels (about 8% of global supply) may face supply loss risks.

How does this 2026 US-Iran war differ from the 2022 Russia-Ukraine conflict?
💡 Both involve supply shocks, but the Hormuz Strait impact is more severe than the Russia-Ukraine conflict. The key difference is that in 2025, the global oil market was oversupplied, monetary policy remained restrictive, and large capital expenditures on AI infrastructure provided some buffer for this impact.

Will rising oil prices delay Fed rate cuts?
💡 As oil prices climb above $70 per barrel, the Fed’s rate cut timeline will be pushed back to after September. In the March meeting, the Fed is likely to focus on inflation risks and adjust rate expectations accordingly, with global central banks also following suit.

Is Iran’s firepower nearing exhaustion?
💡 According to US Central Command, Iran’s missile launches have decreased by over 90% from their peak. With missile capabilities limited, drone attacks are becoming sporadic counterattacks. Iran still has the ability to conduct long-term attrition using low-cost drones, and the conflict may shift toward a low- to medium-intensity standoff.

Will Middle Eastern countries openly oppose and call for an end to the conflict?
💡 About 90% of water in the Middle East depends on desalination, and 80-90% of food relies on imports. If the conflict worsens food security and water resources, Middle Eastern countries may pressure Washington to reduce military strikes and return to diplomatic negotiations for self-preservation.

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