Market in turmoil as Brent and WTI soar, with US-Iran geopolitical tension and fears of a close of the Strait of Hormuz.

International energy markets are in a state of heightened nervousness as uncertainty surrounding developments in the Middle East pushes crude oil prices sharply up. The escalation of diplomatic and geopolitical tensions between the United States and Iran, coupled with the increased risk of disruption to navigation in the Seaway of Hormuz, is reinforcing fears of severe impacts on global oil supply. In this environment of uncertainty, investors are reacting strongly, driving Brent and WTI to new highs, while analysts warn that volatility may remain elevated for an extended period of time, with possible wider impacts on the global economy and inflation.

Crude oil prices registered a fresh rise on Tuesday as markets moved more and more away from the scenario of an agreement between the United States and Iran that could lead to a de-escalation of the crisis and the reopening of the Strait of Hormuz.

Market volatility

Brent gained 3.4% to close at $107.77 a barrel, while US WTI rose 4.2% to $102.18 a barrel, returning back above the psychological $100 mark.

The fresh rise came after United States President Donald Trump rejected Tehran’s counter-proposal to end the conflict. Trump called the Iranian proposal “garbage” and warned that the ceasefire is “on mechanical support.”

“We are at an impasse, a frozen conflict,” Amos Hochstein, a former senior energy adviser to Joe Biden, told CNBC.

Difficult to make meaningful progress

As he noted, the Strait of Hormuz remains closed, creating an environment of “neither war nor oil nor navigation.” According to him, it is extremely difficult to make meaningful progress this week as Trump travels to China for talks with Xi Jinping.

Hochstein estimated that oil prices will remain at high levels, between $90 and $100 a barrel, through the end of the year and into 2027, even if the Strait of Hormuz opens in early June.

He also warned that the oil market is headed for a “cliff” if the US and Iran do not reach an agreement by June.

“When you fall off a cliff in energy and oil, it is very difficult to come back,” he said.

At the same time, Admiral James Stavridis, a former top NATO commander, assessed that Trump now has three options, and none are easy: withdraw from the conflict, restart massive bombing or attempt to militarily open the Strait of Hormuz.

According to him, the latter scenario currently seems the most likely, but it would require huge naval resources, troops on the ground and costs that could reach $1 billion a week.

Since the start of the U.S.-Israeli conflict with Iran on Feb. 28, both Brent and WTI have risen more than 40 percent.

Citi warned in a note that oil prices remain highly volatile and could move even higher if US-Iran negotiations continue to hit obstacles.

Henry Wilkinson, chief information officer at geopolitical risk firm Dragonfly, assessed that a new escalation of the war is entirely possible. He said Trump may ask Xi Jinping to pressure Tehran to accept US conditions at US-China talks later this week.

A similar warning was issued by Saudi Aramco CEO Amin Nasser, who said the oil market would take up to 2027 to return to normal if the Strait of Hormuz remains closed beyond mid-June.

“Even if the Strait of Hormuz opens today, it will take months for the market to rebalance. If the opening is delayed for a few more weeks, then normalisation will be delayed until 2027,” the head of the world’s largest oil company said at an investor briefing on first-quarter results.