Global Oil Prices Surge Back to 2022 Levels, Here Are the Cascading Effects
For the first time since Russia’s invasion of Ukraine in 2022, oil prices surged past $100 per barrel this week, driven by sustained energy uncertainty following the escalation of conflict between the United States and Israel against Iran starting on 28 February.
Approximately 20% of global oil originates from the Gulf region, with most shipped via large tankers through the Strait of Hormuz. This narrow waterway, situated between Iran and Oman, measures only 21 nautical miles (39 kilometres) at its narrowest point.
More than 20 million barrels of oil transit through this strait daily, representing one-fifth of global petroleum consumption and a quarter of all oil traded by sea.
According to the US Energy Information Administration (EIA), over three-quarters of global oil supply (79.8 million barrels per day) travels by sea, passing through several critical chokepoints with no easy transit alternatives.
Since the Iran conflict began, maritime traffic through the Strait of Hormuz has nearly halted entirely. Attacks on vessels and disruptions to navigation equipment have compelled most operators to anchor ships rather than risk transit.
Without this oil flow, global supply chains would face severe disruption. With constrained supply and rising demand, prices are likely to climb, straining consumers and businesses.
Although prices briefly dipped on Monday after US President Donald Trump stated the conflict was “very complete,” analysts warn that high prices could persist if no agreement is reached between Washington, Tel Aviv, and Tehran to cease hostilities.
“This is all about risk,” said Ismayil Jabiyev, a supply chain analyst at CarbonChain, to Al Jazeera. “Consider the Strait of Hormuz and inexpensive drones. This is not a physical blockade – Iran hasn’t built a wall across the sea. Cheap drones will always pose a risk, even if all launch sites are destroyed, since concealed drone launches can continue for months. As long as hostilities persist, disruptions will likely continue. I see no genuine progress or solutions in the near future,” Jabiyev added.
Approximately 89% of oil flowing through the Strait of Hormuz is destined for Asian markets, with China, India, Japan, and South Korea as primary purchasers.
Should traffic remain restricted, Gulf exporters would be forced to seek alternative routes, but options are limited with Saudi Aramco’s East-West Crude Pipeline and the United Arab Emirates’ Abu Dhabi Crude Pipeline (Habshan-Fujairah pipeline) offering roughly 4.7 million barrels per day (bpd) capacity.
Saudi’s pipeline extends from eastern oilfields to Yanbu port on the Red Sea, one of few major routes entirely bypassing the strait. However, of Saudi Arabia’s 7.2 million barrels per day exported in February, 6.38 million barrels per day depend on transit through the strait, according to Kpler, a global trade data and analytics company.
Gavekal Research, an independent macroeconomic research firm, estimates that Gulf nations’ exporters, including Iran, could at most divert an additional 3.5 million barrels per day to terminals outside the strait. Yet, as long as most tanker traffic remains suspended, the world would still face a sudden supply shortage of approximately 15 million barrels per day.
“I am somewhat sceptical of those alternatives. Yes, the East-West pipeline and Fujairah pipeline do exist, but in terms of capacity, neither comes close to the primary route,” Jabiyev told Al Jazeera. “There is also the Kirkuk-Ceyhan pipeline from Iraq’s northern provinces to Turkey, but it is limited to northern oilfield production. Iraq’s main production comes from southern oilfields, so again, that is only a partial substitute, not a full replacement.”
Oil prices rose to their highest levels during the global financial crisis. On 11 July 2008, Brent crude, the European benchmark, reached $147.50 per barrel while West Texas Intermediate crude, the US benchmark, peaked at $147.27. That surge was driven by a combination of US dollar weakness and large-scale speculative fund inflows, rather than physical supply disruptions.
Throughout history, numerous energy market shocks have threatened oil supply, notably the 1973 oil embargo, the Iran-Iraq War in the 1980s, the 1990-1991 Gulf War, the US-led invasion of Iraq in 2003, and Russia’s invasion of Ukraine in 2022.
“I believe the 1990-91 Gulf War offers the most apt comparison. Iraq and Kuwait together represented two major producers, and the disruption was serious and prolonged—lasting roughly half a year or more, despite the military phase being relatively brief,” Jabiyev told Al Jazeera. “The world experienced elevated crude oil prices over an extended period and eventually faced economic slowdown as a result. This makes it most similar to our current situation: the possibility of long-term disruption, sustained high prices, and the risk of significant economic deceleration. The key variable, as in 1990, is how quickly affected nations can restore production infrastructure and reactivate supply.”
Crude oil is a yellowish-black fossil fuel pumped from beneath the earth and refined into fuels such as petrol, diesel, and jet fuel. The refining process also produces various household goods.
Oil is classified based on viscosity and sulphur content. Light sweet crude has low sulphur content and is easily refined, making it more valuable. After extraction, crude oil is transported to refineries.