The oil market may be heading for a sharp rise if the Strait of Hormuz remains closed beyond March, as massive supply losses have not yet been fully reflected in prices.

The war in the Middle East has disrupted large volumes of supply, already impacting Asia, which relies heavily on oil and gas from the Gulf region. Some countries have begun rationing fuel, imposing export bans, and paying high premiums to secure alternative crude to offset shortages caused by the near shutdown of flows through the Strait of Hormuz.

Meanwhile, traders and speculators in the highly volatile futures market appear to be closely monitoring statements from Donald Trump, despite mixed signals ranging from military threats to peace proposals and claims of ongoing negotiations with Iran.

This divergence in messaging has been reflected in market movements, with prices experiencing sharp swings both upward and downward. Between Monday and Wednesday, prices fell about 10% amid hopes of progress in negotiations.

Speculation versus reality

However, the physical market reality differs significantly from what is reflected in futures trading. Actual supply is being reduced by millions of barrels per day in the Middle East, as producers are forced to cut output due to difficulties exporting oil خارج the region.

The impact of these shortages has already begun to appear in Asia and is expected to extend to Europe soon. However, the paper market remains relatively subdued, likely because the full impact of supply disruptions will reach the United States at a later stage.

In this context, the spread between West Texas Intermediate and global benchmark Brent has widened to more than $10 per barrel, a gap not seen in years. This is because Asian refiners do not require most US light crude, instead preferring heavier grades from the Middle East.

As a result, WTI may continue trading at a significant discount, while Brent and Middle Eastern crude prices move higher. The longer the Strait of Hormuz remains closed, the stronger the upward pressure on these prices.

Amrita Sen, founder of Energy Aspects, said Asia is “competing aggressively for every available barrel in the global market.”

Expectations of a sharp price surge

Estimates suggest oil prices could reach $150 per barrel or higher if the war continues through the end of March, according to Kpler. The firm added that it is “only a matter of time” before prices fully reflect the actual supply shortfall.

So far, there are no clear signs of a resolution, with the Strait of Hormuz effectively closed to most oil tankers, except those permitted by Iran to pass to “friendly countries” such as China and some Asian nations.

Early signs of real supply shortages

By March 20, markets had already lost more than 130 million barrels of oil from the Middle East. Projections indicate total disruptions could exceed:

250 million barrels by the end of March

400 million barrels by mid-April

600 million barrels by the end of April

if flows remain halted.

Around 10.7 million barrels per day of production have already been shut in, with the figure potentially rising to 11.5 million barrels per day by the end of March if conditions in the Strait of Hormuz do not improve.

The issue is not limited to export restrictions, as several refineries in the region, particularly in Saudi Arabia and Bahrain, have also been damaged, forcing shutdowns or reduced operations.

Accelerating global repercussions

Supply shortages have driven Asian refiners to pay record premiums for alternative crude, such as Norway’s Johan Sverdrup. Some refineries have also begun reducing operating rates due to crude shortages, while fuel prices have risen sharply.

In response to the crisis, governments have adopted austerity measures such as:

Reducing working days

Expanding remote work

Extending national holidays

Several countries have also imposed fuel export bans, increasing pressure on global markets, particularly for jet fuel and diesel.

In Europe, Shell CEO Wael Sawan warned of potential energy shortages before the end of April, noting that the crisis began in South Asia, spread gradually across the rest of the Asian continent, and is expected to reach Europe soon.

Conclusion

The longer the Strait of Hormuz remains closed, the more severe the global energy crisis becomes. With Iran controlling this vital passage, geopolitical factors remain the primary driver of market direction, regardless of political statements about the possibility of reaching a peace agreement.

US stock indices declined on Friday, with both the S&P 500 and Nasdaq falling to their lowest levels in more than six months, led by losses in technology stocks, as the ongoing war in the Middle East weighed on investor sentiment.

US President Donald Trump granted Iran an additional 10-day deadline to reopen the Strait of Hormuz or face the destruction of its energy facilities, after Tehran rejected his proposals to end the war launched in coordination with Israel.

Despite the extension, markets failed to stabilize, as investors questioned the likelihood of reaching an agreement, while oil prices rose by more than 2%.

Weekly losses persist amid unprecedented uncertainty

The S&P 500 and Nasdaq remained on track to post a fifth consecutive weekly loss, while the Dow Jones Industrial Average is expected to end the week little changed.

Bill Mann, Chief Investment Strategist at Motley Fool Asset Management, said: “We are facing an unprecedented level of uncertainty… the ambiguity of the current war is far greater than any conflict over the past 50 to 60 years.”

The CBOE Volatility Index, known as Wall Street’s fear gauge, rose by 1.57 points to 29.01.

Market performance during the session

As of 11:40 AM New York time:

The Dow Jones index fell by 305.57 points, or 0.66%, to 45,651.29 points

The S&P 500 declined by 45.10 points, or 0.70%, to 6,432.06 points

The Nasdaq dropped by 236.47 points, or 1.10%, to 21,171.61 points

Technology sector leads losses

The technology sector was the hardest hit, declining 0.9%, with Nvidia falling 1% and Microsoft dropping 1.7%.

Software stocks also came under renewed selling pressure, with the iShares Expanded Tech-Software ETF falling 3.4% to its lowest level in more than a month.

Alphabet declined 1.1%, while Meta fell 3.5%, weighing on the S&P 500 communication services sector, which dropped 1.3%.

Additional pressure from other sectors

Consumer discretionary stocks fell 2%, while Carnival shares dropped about 4% after the company cut its full-year adjusted earnings forecast.

The Nasdaq had already entered correction territory on Thursday, after falling more than 10% from its record highs, while the Russell 2000 had entered that phase last week.

Inflation and monetary policy under pressure

Rising oil prices due to the war have intensified inflation concerns, complicating the path for interest rate cuts by central banks.

Data from the CME FedWatch tool showed that markets no longer expect any rate cuts from the Federal Reserve this year, compared to expectations of two cuts before the conflict, with a 32% probability of a rate hike in December.

US consumer confidence also declined to a three-month low in March, reflecting growing concerns about the economy due to the war.

Meanwhile, Unity Software shares surged 10.5% after the company reported preliminary first-quarter revenue that exceeded analysts’ expectations.

On the broader market, declining stocks outnumbered advancers by 1.85 to 1 on the New York Stock Exchange and by 2.5 to 1 on Nasdaq, while the S&P 500 recorded about 21 new 52-week highs versus 16 new lows, and Nasdaq recorded 21 highs versus 262 new lows.

ING analysts said copper prices rose on Friday and are heading for their first weekly gain this month after US President Donald Trump extended the deadline for Iran to reach an agreement, boosting hopes for de-escalation and supporting risk appetite in markets.

However, the analysts noted that most industrial metals remain under pressure amid ongoing uncertainty surrounding US-Iran relations, in addition to the impact of the conflict that has continued for about a month, which is weighing on demand and global growth expectations.

Geopolitical tensions and growth concerns weigh on the market

The report stated that “copper rose on Friday and is on track for its first weekly gain this month after Trump extended the deadline for reaching an agreement with Iran, which supported hopes for de-escalation and improved growth sentiment.”

However, “most industrial metals have declined this month, as uncertainty surrounding negotiations between Washington and Tehran, along with the ongoing conflict, remains a key factor keeping risk appetite fragile.”

The analysts added that “escalating geopolitical tensions have raised concerns about inflation and increased worries about a slowdown in global industrial activity, putting pressure on demand expectations.”

Monthly losses despite recent improvement

In this context, copper prices have declined about 7% since the start of the month, reflecting a broader reassessment of growth-linked assets within the base metals market, amid an economic environment characterized by elevated risks and uncertainty.

Bitcoin fell below the $67,000 level, while Ethereum approached the $2,000 threshold, amid declining equities and oil prices rising above $100 per barrel, alongside large-scale liquidation of leveraged long positions, reflecting fragile investor sentiment.

The cryptocurrency market dropped to its lowest level in more than two weeks, with Bitcoin trading around $66,572, while Ethereum declined to near $2,000. The CoinDesk 20 Index also fell 2.2% since midnight UTC, reaching its lowest level since March 9.

This decline came alongside a drop in US equities, with Nasdaq 100 futures trading at 23,760 points, about 10% below their peak levels recorded in January this year.

War and oil pressures weigh on risk appetite

Risk aversion increased as oil prices rose and concerns grew that the war in Iran could last longer than expected, reinforcing inflationary pressures and weighing on high-risk assets such as cryptocurrencies.

Altcoins were the hardest hit, with ETHFI falling 6%, while WLD, WIF, SEI, and FET declined between 3.6% and 4.7%.

Large-scale liquidation of long positions

Long positions in futures markets suffered heavy losses, with approximately $300 million liquidated over the past 24 hours, compared to only $50 million in short positions.

This marks the fifth time in 10 days that long positions have faced such liquidations, reflecting earlier bets on price increases driven by the war that have not materialized.

Rising bearish bets

XRP fell more than 2.5% over the past 24 hours, while open interest in futures rose 2% to 1.95 billion units, the highest level since February 2, indicating an increase in short positions.

Bitcoin, Solana, Dogecoin, and BNB futures showed similar bearish signals.

Shiba Inu recorded the largest negative flows, reflecting heavy selling and risk reduction.

In contrast, CC, the token of the Canton Network, showed positive signals, with rising funding rates and increased open interest, indicating growing demand for long positions.

Low volatility despite the decline

Despite the price drop, 30-day implied volatility indicators for both Bitcoin and Ethereum continued to decline, suggesting that markets do not expect a sharp sell-off at the moment.

Bitcoin options worth more than $15 billion expired on Deribit, removing the influence of the $75,000 level as a price magnet and opening the door for further declines amid a deteriorating macroeconomic outlook.

Risk reversal data shows that Bitcoin and Ethereum put options are trading at a volatility premium of 6% to 8% over call options, reflecting continued demand for downside protection.