Oil set for sharp jump when markets reopen after Iran conflict

Dubai: Global oil markets are expected to open with sharp gains when trading resumes, with analysts warning that traders are shifting rapidly into a supply-risk mindset following escalating tensions in the Middle East that threaten one of the world’s most critical energy corridors.

Early pricing signals suggest crude could react strongly to fears surrounding the Strait of Hormuz, a narrow waterway through which roughly a fifth of global oil flows, leaving investors focused on whether price moves reflect short-term panic or a deeper reassessment of supply risks.

Samer Hasn, senior market analyst at XS.com, said markets are likely to react immediately once trading resumes.

“I believe we are likely to see a very wide gap in the energy market opening tomorrow, as the worst-case regional war scenario for the markets, which is the closure of the Strait of Hormuz and the targeting of oil tankers, begins to unfold. I do not expect the opening gap to be less than a 3% increase for both benchmarks. Furthermore, speculative movements could drive these gains even higher.”

Analysts say the first few hours of trading will be critical in determining whether crude remains in a temporary risk spike or enters a sustained supply-driven rally.

Vijay Valecha, chief investment officer at Century Financial, said price behaviour beyond the initial jump will signal how markets interpret the threat.

“When markets reopen, investors should likely expect a sharp jump in both Brent and WTI prices, since recent trading already shows higher supply risks. If Brent moves into the $95 to $110 per barrel range, it could signal that the market sees a lasting disruption risk, not just a short-term reaction to news.”

He added that traders will closely monitor developments linked to Hormuz shipping activity.

“The concern is the Strait of Hormuz, which carries almost 20% of the world’s oil, so any threat there is likely to have a significant impact. If prices stay high instead of dropping after the first spike, it may show that traders are rethinking the global supply and demand situation, not just reacting to headlines.”

Market participants say the risk premium tied to shipping disruptions may appear almost immediately in crude futures.

Valecha said futures markets typically respond before physical supply disruptions materialise.

“The risk premium from issues in Hormuz shipping can show up in crude futures almost right away, often within the first day or two after markets reopen. Futures markets usually react to geopolitical risks faster than physical markets, especially when key routes are at risk.”

Hasn pointed to real-time indicators that could confirm whether supply pressures are becoming tangible.

“I also believe rapid developments will be reflected across various energy supply chain and shipping variables, including trade flow volumes, insurance costs, freight, and container availability, until navigation in the Straits of Hormuz and Bab el-Mandeb is decisively secured.”

Insurance costs are also expected to play a major role in sustaining higher prices.

Charu Chanana, chief investment strategist at Saxo Bank, said war-risk premiums often persist even after immediate tensions ease.

“Insurance costs are unlikely to snap back quickly once the whole Gulf is perceived as higher-risk, because war-risk premia tend to linger after a major escalation and only fade with sustained calm.”

A sustained rise in crude prices could also reshape monetary policy expectations and financial market positioning.

Valecha said a spike above key levels would immediately influence inflation outlooks.

“If oil jumps to $90 or more, it would make it harder for the Federal Reserve to cut rates in 2026. Higher oil prices raise headline inflation and push up inflation expectations, especially if energy costs stay high for a while.”

Chanana added that inflation concerns could intensify rapidly at the start of trading.

“If crude sustains a move toward $90+, it raises the odds that markets trim 2026 rate-cut expectations at the margin, because it reintroduces inflation and second-round pricing risks. In that scenario, breakevens can widen quickly at the open, even if growth assets wobble.”

Equity markets are also expected to reflect a clear divergence between winners and losers tied to energy costs.

Valecha said transport-heavy industries will face immediate pressure.

“If oil prices stay high, airlines, logistics, consumer discretionary, and other transport-heavy industries will be hit hardest at the open because of higher fuel costs.”

Chanana echoed that view, noting that investors may rotate rapidly into energy-linked sectors.

“The most vulnerable areas at the open are typically airlines, transport and consumer discretionary, while winners tend to be energy producers and commodity exporters if the price move looks sticky rather than fleeting.”

Hasn added that broader market effects could extend beyond traditional energy sectors.

“Sectors with direct and heavy exposure to energy or transportation markets, as well as highly sensitive sectors like technology, could be the most affected.”

Adding to market uncertainty, key members of the OPEC+ alliance agreed to increase production by 206,000 barrels per day beginning in April, a move that exceeded expectations but may offer limited relief.

Analysts say logistical risks tied to shipping routes are currently overshadowing supply expansion plans.

The decision comes amid fears that disruptions to Gulf transit routes could outweigh incremental output increases, leaving crude prices highly sensitive to developments in shipping flows and regional security conditions.

With markets set to reopen, traders are expected to focus less on production quotas and more on the stability of transport routes that underpin global oil supply.

- With inputs from agencies.