Oil prices have soared to multi-month highs, with Brent crude prices jumping 29 per cent to cross the crucial $100-mark as the war between Iran and Israel-US entered its 10th day, leading to the prolonged closure of the Strait of Hormuz. Analysts say the current situation reminds them of the 1970s oil crisis, which saw crude oil prices rally a whopping 300 per cent.
During the 1973 Arab-Israeli War, Arab members of the Organisation of Petroleum Exporting Countries (OPEC) imposed an embargo against the US and other countries like Netherlands, Portugal and South Africa which supported Israel, in retaliation for the President Richard Nixon-led administration’s decision to re-supply the Israeli military and to gain leverage in the post-war peace negotiations.
All about the 1973 oil crisis
The embargo banned petroleum exports to these nations and introduced cuts in oil production. OPEC demanded that foreign oil corporations increase prices and cede greater shares of revenue to their local subsidiaries.
As a result, oil prices skyrocketed 300 per cent from $3 per barrel to $12 per barrel as 7-9 per cent of the global supply was suddenly removed from the market. This is seen as the worst oil crisis in history so far, which was shortly followed by another 180 per cent rally in oil prices after the Iranian Revolution knocked out Iranian production.
Why Iran remains crucial to oil prices?
Today, oil prices have significantly surged from the 1970s levels, but the pattern of reaction remains the same. Equirus Securities in its note said that Iran’s oil production has significantly reduced over the years, but volume understates influence. “Iran sits astride the Strait of Hormuz, the narrow chokepoint through which ~20 per cent of global oil supply & a similar share of LNG trade transit and hence its geographic position grants it disproportionate leverage over crude flows from Saudi Arabia, Iraq, Kuwait, and the UAE,” it said.
Historically, oil markets reprice aggressively when conflict risk intersects with critical supply arteries-even when no physical barrels are immediately removed from the market. And history provides clear proof, the domestic brokerage added.
Brent crude surged nearly 29 per cent to hit the day’s high at $119.46 per barrel, before paring some gains. West Texas Intermediate (WTI) crude rallied around 31 per cent to hit the day’s high at $119.43 per barrel. Notably, oil prices have crossed the crucial psychological mark of $100 per barrel today for the first time in around two years since Russia attacked Ukraine in 2022.
The Strait of Hormuz continues to remain effectively shut for regular traffic after several tankers were bombed in the area. More than 20 per cent of the world’s oil supply passes through the Strait of Hormuz, which connects the Persian Gulf with the Gulf of Oman and the Arabian Sea.
While US President Donald Trump-led US administration claims that the Strait remains open and has offered to insure vessels transiting the narrow waterway, the market doesn’t seem to be convinced that Iran won’t attack any ship attempting passage.
This is not just an oil price shock – it is also an oil quantity shock, said Anindya Banerjee, Head of Commodity and Currency Research at Kotak Securities. According to the analyst, the last time oil saw a comparable situation was during the 1970s oil crises, when disruptions in physical supply triggered a structural surge in prices.
What makes the current situation different from recent oil rallies is that the disruption is not merely perceived—it is linked to the choking of the Strait of Hormuz, a critical transit point through which roughly 20 per cent of global oil supplies move, the analyst added. “When such a major artery of the global energy system is disrupted, the market is not only repricing risk but also adjusting to the possibility of a real supply constraint,” he said.
What lies ahead?
Going forward, there are two broad paths for the oil market; if the Strait of Hormuz becomes operational again and flows normalise, prices could correct sharply as the supply shock fades, Banerjee said. However, he added that in case the disruption persists for several weeks, oil prices could rise further until they begin to destroy demand by inflicting serious damage on the global economy through inflation, tighter financial conditions, and disruptions to trade and industrial activity.
“Investors should also monitor the escalation ladder in the West Asian conflict. The first stage is the current disruption in transit through the Strait of Hormuz. The second, more serious risk would be direct attacks on oil and gas infrastructure across the region. The third and least probable but most severe scenario would involve damage to critical water infrastructure, which would have a major humanitarian dimension,” he further said.
In terms of price levels, $125 per barrel is the immediate resistance zone, Banerjee said, adding that if prices break above that decisively, the market could begin targeting the 2008 highs near $145–$150. On the downside, $90 has now emerged as a critical support level; a move below that would likely signal meaningful de-escalation. “Given the extreme uncertainty and the risk of sharp overnight moves, traders should approach the market cautiously and prefer defined-risk strategies such as options spreads rather than open-ended directional positions,” he added.
Qatar’s energy minister, Saad al-Kaabi, told the Financial Times last week that global oil prices could surge to as high as $150 a barrel if the conflict in the Middle East intensifies and disrupts energy supplies from the Gulf.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
