Everyone is waiting for the war to end, but are oil prices signaling a prolonged conflict?

Original title: Oil Is the War
Original author: Garrett
Compilation: Peggy, BlockBeats

Original author: Lawtung BlockBeats

Original source:

Repost: Mars Finance

Editor’s note: When the market still treats oil price volatility as the “result variable” of war, this article argues that what truly needs to be understood is how the war itself is being priced through oil.

As the Strait of Hormuz continues to be obstructed, the global crude oil supply system is being forced to be restructured—Asian buyers are massively shifting to U.S. crude, WTI has overtaken Brent, signaling structural changes in the pricing mechanism and the direction of trade flows. In the short term, the price spreads can be explained by contracts, but at a deeper level, the question is: who can still supply?

The author further points out that the key misjudgment in the current market is not the price, but the timing. The futures curve still implicitly assumes that the conflict will end in the short term and that supply will recover. But a more likely path is a long war of attrition. This means that elevated oil prices are no longer a temporary shock; they will evolve into a more persistent structural state, with the range potentially rising to 120–150 dollars.

Within this framework, crude oil is no longer just a commodity—it becomes an “upstream variable” for all assets. Its repricing will transmit step by step along interest rates, exchange rates, the stock market, and credit markets.

The market has priced in the occurrence of the war, but it has not priced in the war’s persistence.

The following is the original text:

Trump gave Iran a 10-day deadline. That was already a week ago. Yesterday, he reminded everyone again: there are only 48 hours left in the countdown. Tehran’s response was: no.

Five weeks ago—on February 28, when U.S.-Israeli fighter jets attacked Iran—the market’s pricing logic was still that of an “surgical” airstrike: two weeks, at most three; the Strait of Hormuz would reopen for navigation; after oil prices spiked, they would fall back, and everything would return to normal.

But our judgment back then was: it won’t.

From day one, our core view has been that this war will first escalate, and only later—if at all—might it cool down. The most likely course is that ground forces get involved, followed by a long, grinding, attritional conflict. The interruption time of the Strait of Hormuz will be far longer than the assumptions the market is willing to incorporate into its model. In the duration framework, the Hormuz pricing models, and the analysis of war variables, we have already laid out the complete logic.

The core conclusion is simple: Iran doesn’t need to “win”; it only needs to raise the cost of the war enough to force Washington to look for a way out. And this “exit” will not come with the Strait reopening smoothly.

After five weeks, every key part of this judgment is being gradually verified. The Strait of Hormuz has still not resumed operations. Brent crude closed at around $110. The Pentagon is preparing for ground operations lasting for weeks. Trump’s war aims have also shifted—from “de-nuclearization” to “send the other side back to the Stone Age,” but he still can’t clearly define what “victory” means.

The deployment of ground forces is the escalation turning point we have been tracking. Marine and airborne units have already assembled in the theater, and this moment is approaching.

But more critical than the next round of airstrikes or the next ultimatum is oil.

Oil is not a byproduct of this war—oil itself is at the core of the war. The stock market, the bond market, the crypto market, the Federal Reserve, and even your everyday food expenses—everything is a downstream variable. As long as you get the call on oil prices right, the rest will unfold accordingly; once you get it wrong, all other decisions lose their meaning.

WTI crude prices have just risen above Brent for the first time since 2022, and this change has already attracted market attention.

Good—it should.

WTI above Brent: Everyone is asking what happened

On April 2, WTI crude closed at $111.54 and Brent closed at $109.03. WTI was at a $2.51 premium to Brent—the largest spread since 2009. And just two weeks ago, WTI was still trading at a clear discount relative to Brent.

Everyone is asking: what happened? Below is the brief version, and then the version that’s closer to reality.

Brief version: A mismatch in contract terms

WTI’s near-month contract corresponds to May delivery, while Brent’s near-month contract has already rolled to June. With supply so tight, “delivering one month earlier” implies a higher price—WTI is simply delivering earlier by happenstance.

Adi Imsirovic, an oil trader currently at Oxford with 35 years of trading experience, said that on top of historical highs in freight and insurance costs, buyers are willing to pay nearly $30 per barrel more for Brent crude when picking it up a month earlier. In his 35-year career, he has never seen anything like this.

This is a “mechanism-level” explanation—it’s correct, but it’s not complete.

Real version: The whole price curve is moving

The convergence between WTI and Brent is not just a one-off mismatch in near-month contracts. Bloomberg notes that this phenomenon is clearly visible across multiple contract months, running throughout the entire forward curve. That means the entire price curve is being repriced.

What’s the cause? A shift in Asian demand. In late March, Asian refineries locked in about 10 million barrels of U.S. crude for May shipments; the week before they also purchased about 8 million barrels. Kpler estimates that U.S. exports of crude to Asia in April will reach 1.7 million barrels per day, up from 1.3 million barrels per day in March. China, South Korea, Japan, and ExxonMobil’s refineries in Singapore are buying U.S. crude—because this is currently the only “cargo still available.”

The Strait of Hormuz remains closed. The benchmark crude Murban from Abu Dhabi—also the closest substitute to WTI—has disappeared from the global market. WTI is becoming the world’s “marginal pricing oil.”

This is not panic buying; it’s a change in fluid supply structure.

Now look at the forward price curve again.

This curve is sending a signal: it’s only a temporary shock, and everything will return to normal before Christmas.

Our view is that this curve is “daydreaming.”

Three endings, one baseline path

We have already proposed this analytical framework in the “Weekly Signal Playbook.” So far, nothing has changed; if anything has changed, it’s that the probability of the baseline scenario is further strengthening.

In the end, this war can only conclude in three ways:

Ending one: Politically, it is almost impossible.

Ending two also doesn’t hold up: the terrain conditions, the demand for manpower, and the logic of how guerrilla warfare evolves all indicate this path is costly and difficult to end. Iran’s land area is three times that of Iraq; its population is nearly twice as large. Not to mention the mountainous terrain in a region that won’t leave room for an invader. This is not 2003.

Ending three is the baseline scenario—and it is far more likely. If the conflict evolves into a long war of attrition, the interruption of the Strait of Hormuz will persist, and oil prices will stay high. This high will be structural, not temporary. The current forward curve clearly does not price in this point enough.

One thing most people overlook is this: if you look only at the oil industry itself, a long war may actually align with America’s strategic interests. Middle East crude oil production capacity would be damaged in the conflict, leaving global buyers to turn to North American energy, because other alternative sources are already scarce. Higher oil prices would also stimulate U.S. producers to expand output—increasing rig counts and ramping up shale oil investment. Look at the chart below and you’ll find that historically, almost every major spike in oil prices has led to a rise in U.S. production within the following 12 to 18 months.

The only cost the U.S. truly needs to manage is domestic: how to avoid keeping gasoline prices above $4 per gallon for the long term, which would trigger political backlash. This is a “pain-point threshold,” not a condition that determines whether the war ends.

“Arithmetic” of prices

With the Strait of Hormuz closed, a $110 Brent price is not a ceiling—it’s just the starting point. In our baseline case, as long as the Strait remains closed, oil prices will stay in the 120 to 150 dollar range.

Every week that passes, inventories are being drawn down. UBS data shows global inventories have fallen to the five-year average by the end of March—before the most recent round of escalation even happened. Macquarie’s assessment is that if the war drags past June and the Strait is still not opened, the probability of oil prices surging to $200 is 40%.

The near-month spread (i.e., the spread between the two most recent Brent contracts) has already widened to $8.59 per barrel. The market is paying about an 8% premium for “one-month-earlier delivery”—a level of tightness at the 2008 range.

But in 2008, nearly 15% of global supply was not physically locked out.

Today, nearly all models, all price curves, and all Wall Street year-end forecasts are built on the same assumption: the conflict will end, the Strait of Hormuz will reopen, oil prices will revert to normal, and the world will go back to how it was.

Our view is: it won’t.

The back end of the forward curve hasn’t caught up with reality. The market has priced in “the war happens,” but it hasn’t priced in “the war continues.” Before the Strait of Hormuz reopens, every pullback in crude oil is an opportunity. This is our core position, and we will not hedge it.

Oil is the first node. When “ground forces move in,” and there is no quick victory—when the conflict evolves into the kind of long war of attrition that we judged from day one—repricing will not stop at crude oil itself. It will transmit sequentially into interest rates, exchange rates, the stock market, and the credit markets. That’s what will happen next.