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 Not Be an Overstatement

It may sound exaggerated, but as the energy crisis persists, this outcome seems more likely than the prediction by U.S. President Donald 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.”

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

Given that since the conflict began, approximately one-fifth of global oil supply (about 20 million barrels per day) has been trapped due to the actual closure of the Strait of Hormuz, oil prices should be 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.

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

However, this optimism appears increasingly difficult to reconcile with the on-the-ground reality—both on the increasingly intense battlefield and 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 these have largely been ignored in the international paper crude markets so far.

Despite trade disruptions caused by the Iran conflict, Middle Eastern benchmark prices have soared to historic 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 further cut production in the coming months.

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

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 over Dubai swaps of $55.74 per barrel, compared to 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 actual supply following multiple attacks on Oman’s oil terminals 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’s 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 shocks are 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 still ample early in 2026, and overall Atlantic basin supply remains 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 the physical market dislocation. Currently, spot prices in Dubai and Oman 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 basin prices.

Crucially, trade geography exacerbates this dynamic. Most oil transported through the Strait of Hormuz is headed to Asia—in the pre-conflict period, 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, the immediate physical shortages—and soaring prices—are concentrated in Asian markets, which are most dependent on Gulf oil. In fact, with product prices surging and spot crude becoming prohibitively expensive, early signs of demand destruction have appeared in Asia.

JPMorgan notes that the timing effect further amplifies 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 Brent and WTI prices will have a longer buffer due to excess inventories and slower supply adjustments. The impact on U.S. crude oil, with over 13 million barrels per day, will be the smallest.

JPMorgan believes that the apparent stability of Brent and WTI prices under these circumstances should not be mistaken for ample global supply. Instead, it reflects temporary buffers created by regional inventory surpluses, benchmark composition, and policy interventions.

In fact, for refiners—especially in Asia—the current crude shortage is a serious problem. About 60% of oil imports in the region depend on the Middle East, and the difficulty in finding substitutes and timely supplies is rapidly becoming acute. Pressure has already forced many countries to make painful adjustments. Refiners across Asia are beginning to cut processing rates to conserve dwindling inventories. Some countries 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 per barrel peak reached earlier this month.

The Crisis Could Spread Further

Ultimately, this crisis is unlikely to be limited to Asia.

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

Unsurprisingly, the Amsterdam-Rotterdam-Antwerp (ARA) jet fuel barge prices have soared 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 persuasive.

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

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

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

Admittedly, the oil market was relatively well-supplied at the start of the Iran conflict, with the 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 the initial shock. 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 eventually reopens, prices may initially plunge in a relief rally, but given the severe physical market realities, traders should think twice before betting on a quick return to normal as promised by Trump…