The global oil price hit $126 a barrel on Thursday, its highest level since 2022, after Donald Trump said the US blockade of Iranian ports could last for months and peace talks remained stalled.
After surging more than 13% in 24 hours, the price of Brent crude futures reached its highest price since the war began on 28 February. Not since Russia’s 2022 invasion of Ukraine has Brent topped $120, with the price then peaking at $139.
Oil markets have been spooked this week as Trump appeared willing to maintain the US navy’s blockade of Iranian ports, with Iran responding by keeping the strait of Hormuz all but shut to other oil tankers.
Market observers believe that traders are beginning to look beyond the early optimism that a diplomatic resolution could restore Gulf oil flows through the vital trade route, and towards “the reality of the supply situation”.
“The breakdown of talks between the US and Iran, along with President Trump reportedly rejecting Iran’s proposal for a reopening of the strait of Hormuz, has the market losing hope for any quick resumption in oil flows,” Warren Patterson, the head of commodities strategy at the investment bank ING, said.
Oil later fell back from its four-year high, to about $114 a barrel on Thursday afternoon.
A graph showing daily changes to the price of Brent crude since the start of the Iran war
Trump told oil executives this week that the US would “continue the current blockade for months if needed”, according to a White House official.
US officials hope the blockade will force Iran to cap its oil wells and shutter production once its oil facilities, such as Kharg Island, have filled to the brim.
“The blockade is somewhat more effective than the bombing,” Trump told Axios. “They are choking like a stuffed pig.”
The sharp rise in oil prices has raised the risk of a global recession fuelled by the rising cost of fuels and industrial feedstocks.
The economist Paul Krugman, a former New York Times columnist, said he believed most analysts had been “far too sanguine” about the effects of a prolonged Hormuz crisis.
“In my view, a full-on global recession is more likely than not if the strait remains closed for, say, another three months, which seems all too possible,” he wrote on his Substack on 20 April.
Jim Reid, a market strategist at Deutsche Bank, said there were now “growing fears about an extended stagflationary shock”, leading to higher interest rates – or yields – on government bonds.
“Overnight we’ve seen Japan’s 10-year yield move up to 2.51%, which would be its highest closing level since 1997. It was a similar story in Europe too, with the 10-year [German] bund yield at a post-2011 high of 3.11%, whilst 10-year [UK] gilt yields hit a post-2008 high of 5.07%,” Reid added.
US inflation soared in March, with prices up 3.3% over the year. Meanwhile, Britain is facing a £35bn economic hit and the risk of a recession in 2026 because of the war, a thinktank has said.
Without an end to the oil market’s biggest supply crisis in history oil prices could return to all-time record highs of about $147 reached in 2008. Tehran said two weeks after shutting the strait that the world needed to prepare for $200 barrels of oil.
