Since February 28, 2026, the United States and Israel have launched a large-scale air campaign against Iran, and the conflict has rapidly escalated into a regional crisis. Iran's Supreme Leader was killed, and its nuclear facilities and missile bases were severely damaged. Iran retaliated with ballistic missiles and drones, and at one point threatened to close the Strait of Hormuz.



The impact of the geopolitical conflict was almost immediately transmitted to the energy market. Brent crude is currently hovering around $85-87 per barrel, up about 20% to 25% from before the conflict. Market concerns are very direct: if the conflict continues to escalate, or even leads to the disruption of shipping in the Strait of Hormuz, it would be almost a logical outcome for oil prices to surge to $100.

But what truly deserves attention is not just how much oil prices will rise, but the structural logic behind this surge. War does indeed drive up oil prices, but equally important is that high oil prices often become the force that ends a war. From this perspective, this round of oil price increases is likely just a typical "war premium": a short-term surge with rapid pricing risks, and once a ceasefire is achieved, the premium will quickly disappear.

Oil prices surge in the short term: War premiums are being priced in rapidly.

The core driver of this round of oil price increases is not that there has been a large-scale disruption in actual supply, but rather that the market is pricing in potential risks in advance.

Iran currently exports approximately 2 million barrels of crude oil per day, while the Strait of Hormuz handles about 20% of global seaborne oil transport. Whenever this waterway is potentially blocked or severely disrupted, the energy market will rapidly increase its risk premium.

Although the strait is not truly closed, tensions have already begun to affect shipping. Drone attacks, naval escorts, and soaring insurance premiums have all led some oil tankers to detour or delay their entry into the Persian Gulf. This uncertainty alone is enough to drive oil prices rapidly upward.

The assessments of multiple investment bank models are largely consistent: if the conflict is brought under control within a few weeks and the Strait of Hormuz remains largely open to navigation, oil prices will likely peak between $90 and $95; however, if the conflict drags on for months or shipping through the strait is disrupted for an extended period, oil prices breaking through $100 will be almost inevitable.

The fact that oil prices have not yet broken through $100 largely indicates that the market is still betting on a key assumption—that the war will not last long. The US has even publicly stated that the operation may only last four to five weeks, and this expectation has, to some extent, prevented oil prices from spiraling out of control further.

Of course, in the early stages of the war, uncertainty remains extremely high. Iran's asymmetric counter-attack capabilities, Israel's objective of weakening its missile systems, and the potential intervention of regional proxy forces could all escalate the conflict in the short term.

The backlash of high oil prices

The truly subtle point is that rising oil prices are not only a consequence of war, but can also, in turn, alter the course of the war.

Once oil prices approach or surpass $100, the economic impact will spread rapidly. Rising energy costs will reignite global inflation expectations and directly impact the growth prospects of major economies. For the US and Europe, already operating in a complex economic environment, such a shock is almost the last thing they want to see.

This is especially true in the United States. Although the U.S. has become a net energy exporter, domestic gasoline prices remain a highly sensitive political variable. If oil prices remain high, inflationary pressures and voter discontent can quickly translate into policy pressure.

Iran is also ill-equipped to withstand a prolonged conflict. Its economy is heavily reliant on oil exports; if war disrupts exports, even rising oil prices may not translate into real revenue. The combination of shipping risks and financial sanctions could rapidly deplete its foreign exchange reserves.

In other words, as oil prices continue to soar, the economic costs of war will rapidly increase, and these costs will ultimately, in turn, reduce the space for conflict escalation.

Exhaustion outside the battlefield

As the war progresses, some marginal changes have begun to emerge.

U.S. precision strikes have significantly weakened some of Iran's missile launch capabilities, resulting in a marked decrease in the intensity of Iranian missile attacks. However, at the same time, the advanced munitions used by the U.S. and its allies for missile interception and long-range strikes are being rapidly depleted. A reality of modern warfare is that advanced weapon stockpiles are often depleted far faster than replenished.

Political pressure is also building. Domestic support for the war is low in the United States, and as the conflict continues, dissent within Congress is rising. For any U.S. government, declaring a "strategic success" before domestic political pressure intensifies is often more appealing than a prolonged military operation.

Meanwhile, diplomatic channels are also becoming increasingly active. Oman, Qatar, and other countries have historically been important mediators in Middle East conflicts, while China's involvement in Middle East diplomacy has significantly increased in recent years. These third-party channels leave room for future negotiations.

The end of the war with each side declaring victory

From a strategic perspective, all parties already have the narrative space to declare victory.

The United States and Israel could claim that Iran's nuclear program and missile systems have suffered a major blow, thereby significantly reducing the regional security threat. Iran, on the other hand, could emphasize its successful resistance to an external military attack, its maintenance of national sovereignty, and its continued regional influence.

This "mutually assured victory" ceasefire model is not uncommon in the history of Middle Eastern conflicts. While it may be difficult to completely defeat the other side militarily, a political solution can be quickly found to end the war.

Oil prices return to normal after ceasefire

One certainty in the energy market is that risk premiums tend to disappear faster than they form.

Currently, about $15 to $20 of oil prices can be considered a pure war premium. Once a ceasefire is achieved, the market will quickly repric the risk. After shipping in the Strait of Hormuz stabilizes, Iranian crude oil exports can gradually resume, and Gulf oil-producing countries with spare capacity are fully capable of increasing supply in the short term.

In this context, a rapid drop of $10 to $15 in oil prices is almost expected. In the medium term, a return to the $65-$70 range for oil prices would also be consistent with the global supply and demand fundamentals before the outbreak of the conflict.

Conclusion

Considering geopolitical, energy supply and demand, and macroeconomic factors, the logic behind this crisis is actually quite clear: war drives up oil prices in the short term, and high oil prices rapidly increase the economic costs of war, which in turn pushes the conflict to seek a ceasefire.

Therefore, it is not surprising that oil prices have surged to $100 in the short term. However, if the conflict does not escalate into a protracted regional war, then this high oil price is likely just a temporary war premium.

Once a ceasefire is achieved, a drop in oil prices will almost certainly be a market reaction.

The oil market is ultimately priced not by the war itself, but by how long the war will last.