Brent crude settled up 3.1% at $116.72 a barrel, its highest close since April 29, while WTI rose 3.8% to $103.27 a barrel. Yet Middle East oil shipments have recovered above prewar levels, and flows through the Strait of Hormuz itself are down 26%.
Fear Is Driving Prices, Not a Shortage
Oil prices climbed sharply on Friday as concerns of renewed U.S.-Iran-Israel conflict intensified following the November 3 midterms. December Brent crude settled up 3.1% at $116.72 a barrel, its highest close since April 29, while WTI for December delivery rose 3.8% to $103.27 a barrel. Brent was up 6.2% for the week, and WTI was up 4.3% for the week. Despite the sharp increase, Gulf oil shipments have already surpassed prewar levels, reaching over 24 million barrels a day.
Flows through the Strait of Hormuz, the critical shipping lane, remain 26% below their prewar level. This divergence highlights that the price surge is driven by geopolitical risk rather than an actual supply shortage.
U.S. and Israel Prepare for Renewed Strikes on Iran
The market’s concern stems from reports that the U.S. and Israel are preparing to intensify attacks on Iran following the November 3 midterms. According to the New York Times, the two countries are considering strikes on Iran’s energy infrastructure and nuclear facilities.
The State Department has ordered non-emergency personnel and families to evacuate Saudi Arabia due to threats from Iran-aligned Houthis. Iran has warned that any renewed U.S. or Israeli strikes would trigger a wider response, targeting airports, oil pipelines, and other economic infrastructure across the Persian Gulf.
The military buildup is challenging expectations of de-escalation following the midterms. Analysts suggest that the economic impact of higher oil prices may not be as severe as in past decades, as gasoline now represents a smaller share of household disposable income.
Middle East Exports Have Recovered Above Prewar Levels
The rise in oil prices is largely attributed to a geopolitical risk premium rather than an actual shortage. Middle East oil shipments have recovered above prewar levels, yet prices continue to climb. This indicates that traders are paying a premium for potential future conflicts rather than current supply constraints.
The Strait of Hormuz, a critical shipping lane for global energy supplies, remains a focal point of concern. Flows through this chokepoint are still down 26% compared to prewar levels. The risk premium reflects fears of renewed U.S.-Iran-Israel conflict, despite no immediate sign of a supply disruption.
The Impact of Higher Oil Prices
For U.S. households, the impact of higher oil prices can be felt at the pump and in household budgets. The economic effects may not be as severe as in past decades, as noted above, which could soften the blow for consumers who are particularly sensitive to fuel cost fluctuations.
While the immediate financial burden is real, the broader economic impact may be less severe than previously experienced. The key factor will be whether the current risk premium translates into actual supply disruptions or remains speculative.
Global: Gulf Shipping and Geopolitical Tensions
The Strait of Hormuz remains a critical chokepoint for global energy supplies, and its security is a focal point of current geopolitical tensions. Iran’s warnings of retaliation against U.S. and Israeli strikes highlight the fragile situation in the region. Any disruption to shipping through this vital waterway could have significant implications for global energy markets.
Iran has warned that any U.S. aggression could trigger a severe retaliatory response, potentially targeting Saudi oil refineries, data centres, and undersea internet cables. Traders and reserve managers are closely monitoring the situation in the Middle East. While oil prices may experience short-term volatility, the risk premium is likely to persist as long as geopolitical uncertainty continues.
The number that decides whether today's price is fear or fact is the flow through the Strait of Hormuz, and right now it sits 26% below where it stood before the war. | 
