Why are oil prices surging?

Disruptions in supply and shipping are the immediate drivers

Global energy markets have reacted sharply to the widening military campaign in the Middle East. Two linked factors are driving the surge: direct damage and attacks on energy infrastructure, and disruptions to shipping through the Strait of Hormuz, a key global chokepoint for crude oil.

Iran and its proxies have struck tankers, refineries and desalination facilities in the region, and reports that Iran has begun laying mines in the Strait of Hormuz have increased the risk premium for insurers, shippers and traders. In response, some operators have rerouted or delayed sailings, and major underwriters have raised war-risk premiums for ships in the region. Those market reactions reduce effective supply even when physical barrels remain available.

The price jump is producing knock-on effects:

• Domestic pump prices and jet fuel costs are rising, squeezing consumers and travel costs;
• Airlines and logistics firms are signaling higher fares and surcharges;
• Central banks and fiscal authorities are watching inflation and interest-rate implications; and
• Policymakers in several countries are holding emergency talks about releasing strategic reserves.

Political choices are amplifying the economic impact. Officials have floated measures ranging from convoy escorts through the Strait to more dramatic options, including seizing strategic facilities. Those moves aim to keep oil flowing but also raise the prospect of further escalation. Until military activity and shipping risk are reduced, energy markets are likely to remain volatile and prices elevated.