Oil to get more expensive this week as Middle East tensions escalate

Dubai: Oil prices are expected to rise further in the coming week, supported by escalating geopolitical tensions in the Middle East and growing signs that supply risks are broadening beyond key transit routes.

Brent crude traded above $112 per barrel, while U.S. West Texas Intermediate hovered near $100, reflecting a continued rebound from earlier declines. Prices have risen sharply from pre-conflict levels of around $70, underscoring the market’s increasing focus on potential supply disruptions.

Escalation spreads across region

The conflict entered its 29th day on Saturday with signs of widening regional spillover, adding to concerns about energy and infrastructure security. Iranian missile and drone strikes hit multiple targets, including the Khalifa Economic Zone Abu Dhabi (KEZAD).

The escalation extended beyond the Gulf, with Iran-backed Houthi forces launching a missile toward Israel for the first time since the war began, while Israeli forces intensified strikes in Lebanon and Beirut. Additional incidents were reported at ports and infrastructure across the region, including disruptions in Oman, raising concerns over the security of key shipping and logistics hubs.

The widening scope of attacks has reinforced market fears that the conflict is no longer contained and could begin to affect energy flows and industrial operations across the Gulf.

Diplomacy fails to cap gains

Markets initially reacted to comments from Donald Trump, who extended a deadline to April 6 for Iran to allow oil tankers to pass through the Strait of Hormuz. The move briefly eased prices as investors interpreted it as a potential window for de-escalation.

However, that relief proved short-lived. Prices resumed their upward trend as trading moved across global markets, with continued hostilities and conflicting signals from Washington and Tehran reinforcing uncertainty.

“The diplomatic dissonance this week between the U.S. and Iran dismayed investors,” said Doug Beath, global equity strategist at the Wells Fargo Investment Institute. “By the end of the week, risk appetite could not withstand the fog of war.”

Markets focus on escalation

Analysts said markets are increasingly discounting political statements unless backed by tangible progress, particularly as the conflict spreads to new locations.

“Any further statements by Trump about a deal are white noise to the markets,” said Jim Bianco, president and macro strategist at Bianco Research. “Only if the IRANIANS say the talks are going well will it impact markets.”

The lack of alignment between the two sides, combined with continued military escalation and attacks on infrastructure, has kept oil prices supported even after temporary pullbacks.

Oil to stay above key levels

Analysts pointed to the resilience of oil prices above key psychological levels as a sign of underlying strength.

Fawad Razaqzada, market analyst at FOREX.com, said crude’s ability to hold above $100 reflects sustained upward pressure. “Oil has bounced back to climb above that $100 level… that move builds on gains from the previous session after Iran effectively rejected Trump's proposal for a ceasefire,” he said.

Razaqzada added that geopolitical tensions remain the dominant driver. “If it does escalate, then we're likely to look at significantly higher oil prices and much lower stock markets,” he said, noting that inflation risks are already rising due to higher energy costs.

“Higher for longer” outlook

Market participants are increasingly shifting from expectations of a quick resolution to a prolonged period of elevated prices.

Stephen Innes, managing partner at SPI Asset Management in Singapore, said the latest developments have not reduced underlying risks. “The ten-day extension is time bought, not risk reduced, and markets are pricing that distinction,” he said.

He added that oil’s resilience reflects deeper concerns tied to the expanding conflict footprint. “Oil remains the anchor, and its refusal to stay lower signals persistent escalation risk beneath the headlines. The market is shifting from pricing a quick resolution to managing the probability of a longer, structurally embedded conflict.”

Supply fears to keep costs up

The standoff over the Strait of Hormuz remains central to price direction, but recent attacks suggest risks are no longer limited to shipping lanes. Strikes on industrial zones, ports and logistics hubs have increased concerns about broader disruptions to energy and supply chains across the region.

Analysts said the combination of constrained shipping flows, attacks on infrastructure and lack of diplomatic progress is likely to keep prices elevated in the near term.

While short-term volatility is expected to persist, the broader trend suggests oil prices could continue to edge higher this week unless there is a clear and credible de-escalation in the region.

- With inputs from Agencies