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Oil surged to their highest levels since January 2025 on Tuesday, driven entirely by severe, immediate physical supply disruptions stemming from the escalating military conflict between the US, Israel, and Iran.

Brent crude futures settled up $3.66, or 4.7%, at $81.40 a barrel. US WTI crude gained $3.33, or 4.7%, to close at $74.56 a barrel.

The bulk of the session's rally was fuelled by the effective closure of the Strait of Hormuz. Following Iranian retaliatory strikes on regional infrastructure, maritime insurers cancelled coverage for vessels in the region, sending shipping rates soaring. This abrupt cessation of transit acted like a severed transatlantic fibre-optic cable, instantly blacking out a route responsible for one-fifth of global oil flows and forcing the market to aggressively price in a severe geopolitical risk premium.

Compounding the transit fears was a concrete reduction in physical barrels. Iraq, OPEC's second-largest producer, slashed its crude production by nearly 1.5 million barrels per day due to export blockages. With domestic storage rapidly filling and the potential for cuts to double within days, the market immediately priced in this sudden supply vacuum.

Despite the extreme upward momentum that pushed Brent to an intraday peak of $85.12, benchmarks pared gains late in the session. This retracement was directly driven by US President Donald Trump’s assessment that Iranian naval and air capabilities had been critically degraded. This rhetoric injected the probability of a swifter-than-expected military resolution into the market narrative, capping the rally and pulling prices off their session highs.

Written by: Aiman Haikal