The price of oil has surged dramatically, climbing back above the $100 per barrel threshold following an announcement from President Donald Trump that the United States will impose a naval blockade on the crucial Strait of Hormuz, effective from Monday.
Immediate Market Impact and Price Volatility
President Trump's declaration, framed as a response to the collapse of diplomatic talks with Iran, triggered an immediate spike in global oil benchmarks on Monday morning. The price of Brent crude oil jumped by approximately 7 percent, briefly touching $102 per barrel before settling slightly lower by 9am BST.
This sharp increase reverses a recent period of relative calm. A fragile two-week ceasefire agreement, which only came into effect last week, had seen prices retreat from around $110 per barrel to the mid-$90s. However, optimism quickly faded as the agreement's instability became apparent and the strategic Strait of Hormuz—a conduit for roughly one-fifth of the world's oil supply—remained effectively closed to normal traffic.
Investor Skepticism Tempers Wild Swings
Despite the significant price jump, financial markets have not reacted with the same intensity witnessed at the onset of the US-Iran conflict. Analysts attribute this relative calm to growing investor wariness of President Trump's propensity to reverse course and not follow through on stated threats.
"The announcement of a US blockade of the Strait of Hormuz effective today, an apparent refusal by Iran to abandon their nuclear ambitions and the likelihood of a renewed conflict, led to another surge in the oil price," said Richard Hunter, head of markets at interactive investor. "Inflationary concerns are therefore back on the table... It now remains to be seen whether the US President’s latest threats will be enforced, with the muted market reaction thus far implying that it could turn out to be a negotiation tactic."
This sentiment was echoed by Kathleen Brooks, research director at XTB: "Even though President Trump is planning to blockade the Strait of Hormuz... the President is notorious for changing his mind and switching positions, so his threats are losing market impact."
Stock Markets Show Restrained Declines
European equity markets reflected this cautious stance. On Monday morning, London's FTSE 100 index was down a modest 0.4 percent. Major continental indices, including Spain's Ibex 35, France's CAC 40, Germany's DAX, and the Euro Stoxx 50, also fell, but their losses were contained to a range of 1 to 1.2 percent. This contrasts sharply with the 3 to 4 percent daily plunges that were commonplace just a month ago.
Asian markets presented a mixed picture overnight, with shares falling in South Korea, India, and Japan, but posting slight gains in Saudi Arabia, China, and Taiwan. The overall picture suggests that while investors remain vigilant regarding further oil price shocks, the market sentiment is "far from totally risk-off right now," amid lingering hopes that diplomatic channels between the US and Iran might reopen.
Heating Oil Prices Remain Stubbornly High
Separately, the UK market for heating oil—which operates under different pricing dynamics than Brent crude—has shown stability at elevated levels. On Monday, the price held steady at around 122 pence per litre, similar to last week's figures.
This commodity has experienced extreme volatility since the conflict began. Prior to the war, the average UK price hovered between 56 and 57 pence per litre. It then skyrocketed to over 134 pence by early March. Although it has since retreated slightly, the current price remains approximately 115 percent higher than pre-conflict levels, underscoring the lasting inflationary pressure on consumer energy costs.
With reports suggesting President Trump is considering resuming air strikes on Iranian infrastructure, fears persist of another severe price surge, potentially pushing oil toward the $120 per barrel mark. However, the tempered reaction from broader financial markets indicates a growing belief that the current crisis may yet be navigated through further negotiation, however uncertain that path may be.
