Crude prices hit their highest level since Russia's 2022 invasion of Ukraine on Wednesday, climbing above $126 a barrel as oil markets reacted to signals that the United States is prepared to maintain its naval blockade of Iranian ports for an extended period.
Brent crude jumped more than 13 percent in a single day, driven by comments from Donald Trump suggesting the blockade could persist for months and as peace negotiations stalled. The last time oil topped $120 was in 2022, when it briefly peaked at $139 during the Ukraine war.
Trump told Axios the blockade was "somewhat more effective than the bombing," adding that Iran is "choking like a stuffed pig." At a meeting with oil executives, Trump discussed options for "continuing the current blockade for months if needed," according to a White House official. His earlier prediction that the conflict would resolve in four to six weeks has not materialized, with the war now approaching its tenth week.
The standoff has created a two-way chokehold on global energy markets. While the US Navy blocks Iranian exports, Iran has kept the Strait of Hormuz nearly shut to other oil tankers, cutting global supplies by roughly 20 million barrels daily. Planned US-Iran talks in Islamabad over the weekend never occurred, leaving the deadlock intact.
The US strategy aims to force Iran to cap production once its storage facilities, particularly Kharg Island, reach capacity, though analysts disagree on the timeline. Analysts and economists are sounding fresh alarms about the fallout. Oxford Economics warned that a six-month closure of the strait could push oil to $190 by August. Paul Krugman, the economist and former New York Times columnist, wrote on his Substack that a full global recession is "more likely than not" if the strait remains blocked for another three months.
The oil spike is already rippling through financial markets and inflation data. Jim Reid, a strategist at Deutsche Bank, said the surge reflects "growing fears about an extended stagflationary shock," with government bond yields climbing worldwide. Japan's 10-year yield reached 2.51 percent, its highest close since 1997. Germany's 10-year bund yield hit a post-2011 high of 3.11 percent, while UK gilt yields climbed to a post-2008 high of 5.07 percent.
US inflation already jumped to 3.3 percent year-over-year in March. Britain faces a predicted 35 billion pound economic hit and recession risk in 2026 because of the war, according to a thinktank analysis. Tehran made its own moves on the diplomatic front, with Iran's foreign minister, Abbas Araghchi, calling officials in India, Kenya, and Poland to shore up international support.
The price shock recalls 2008, when crude briefly hit $147 during the financial crisis. Two weeks after US and Israeli strikes on Iran began, Tehran suggested the world should brace for $200 barrels.
Author James Rodriguez: "Markets are pricing in a genuine energy shock that could crater growth, and nobody in power seems particularly interested in backing down first."
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