Oil prices surged sharply on Thursday as Iran escalated attacks on oil and transport infrastructure in the Middle East, raising fears of a prolonged conflict and potential disruptions to oil flows through the Strait of Hormuz.

Brent crude futures jumped $6.41, or about 7%, to $98.45 per barrel by 12:35 GMT after briefly touching the $100 level earlier in the session. US West Texas Intermediate crude also climbed $5.98, or 6.85%, to $93.23 per barrel.

The gains extended after US Energy Secretary Chris Wright told CNBC that the US Navy cannot currently escort ships through the Strait of Hormuz, though he said such a move could become “very likely” by the end of the month.

Brent had earlier reached $119.50 per barrel on Monday, its highest level since mid-2022, before retreating after US President Donald Trump said the war with Iran might end soon.

The International Energy Agency said the Middle East war is causing the largest disruption to oil supplies in the history of global markets, one day after approving a record release of 400 million barrels from strategic reserves.

In its monthly report, the agency said Gulf countries in the Middle East have reduced oil production by at least 10 million barrels per day, equivalent to about 10% of global demand. However, analysts at Energy Aspects expressed doubts that the full volume would actually be released, noting that 400 million barrels of oil and petroleum products would cover only about 25 days of the current supply disruption.

Goldman Sachs expects Brent crude to average around $98 per barrel in March and April before falling to about $71 in the fourth quarter. However, the bank warned that if oil flows through the Strait of Hormuz were disrupted for a month, average prices could rise to around $110 during the same period.

Analysts at ING said the only way to sustainably lower oil prices would be to restore oil flows through the Strait of Hormuz, adding that failure to do so could mean that further price peaks still lie ahead.

On the security front, reports said Iranian boats loaded with explosives attacked two fuel tankers in Iraqi waters, setting them on fire and killing one crew member after four vessels were struck by projectiles in Gulf waters.

Lebanon’s Hezbollah also launched its largest rocket barrage since the start of the war on Wednesday evening, prompting Israeli strikes on Beirut. The attack raised concerns that Yemen’s Houthi group could join the conflict alongside Iran, potentially worsening shipping disruptions in the Red Sea.

In an effort to offset supply losses, Saudi Arabia increased crude exports through the Yanbu port on the Red Sea in recent days. Meanwhile, China ordered an immediate ban on refined fuel exports during March as a precautionary step to prevent a potential domestic fuel shortage resulting from the Middle East conflict.

The British pound moved toward its third consecutive daily loss against the US dollar on Thursday as concerns mounted about a prolonged rise in energy prices and escalating tensions in the Middle East war, prompting investors to seek the dollar as a safe-haven asset.

Bank of England Governor Andrew Bailey is scheduled to deliver remarks later on Thursday, just one week before the central bank’s policy meeting to decide interest rates.

As oil and natural gas prices climb, investors’ expectations for inflation have also increased. Although the pound has fallen only 0.7% since the war began on February 28, it remains among the best-performing currencies among economies that rely heavily on energy imports.

By comparison, the euro and the South Korean won have each lost between 2% and 3% of their value, while both the Indian rupee and the Japanese yen have declined by more than 1.5%. The weakness of the euro is also evident in its 1.3% decline against the pound since the conflict began.

In recent trading, the pound slipped 0.2% against the dollar to $1.3386. It also weakened against the euro, which rose 0.1% to 86.3 pence.

Sharp shifts in interest rate expectations

Higher bond yields and expectations of interest rate hikes typically support currencies, which has partly helped limit the pound’s losses. However, market expectations for monetary policy have fluctuated sharply over the past two weeks.

At the end of February, markets expected the Bank of England to cut interest rates twice this year. Those expectations have now shifted to reflect roughly a 50% probability of one rate hike by December.

In Europe, swap market pricing indicates that the European Central Bank could raise interest rates twice this year, while the US Federal Reserve appears less inclined to implement the two rate cuts markets had previously expected.

Fiona Cincotta, strategist at City Index, said the sharp repricing of Bank of England rate-cut expectations is providing some support for the pound. She added that attention will remain focused on geopolitical developments and concerns about rising energy prices and inflation resulting from the war.

As investors increasingly bet that several major central banks may raise interest rates rather than cut or hold them steady, they have been selling short-term bonds, which typically benefit from stable or falling interest rates.

UK government bonds have been the hardest hit among major markets. Two-year gilt yields have risen about 50 basis points since the war began, compared with increases of 38 basis points in Italian yields, 30 basis points in Australian yields, and just 21 basis points in two-year US Treasury yields.

Gold prices fell in European trading on Thursday, continuing to move in negative territory for the second consecutive day due to weak safe-haven demand for the metal, along with pressure from the strengthening US dollar in foreign exchange markets.

Higher energy costs have fueled concerns about accelerating inflation again across most parts of the world, reducing the likelihood of near-term interest rate cuts by the Federal Reserve.

Price Overview

Gold prices today: gold declined 1.0% to $5,125.84, down from the session opening level of $5,175.98, after touching a high of $5,185.85.

At Wednesday’s settlement, gold lost more than 0.3%, marking the second daily loss in the past three sessions due to pressure from the US dollar.

US Dollar

The dollar index rose about 0.3% on Thursday, extending gains for the third consecutive session and approaching a four-month high, reflecting the continued strength of the US currency against a basket of major and secondary currencies.

As is well known, a stronger US dollar makes dollar-denominated gold bullion less attractive for buyers holding other currencies.

The dollar’s rise is driven by increased demand for the US currency as a preferred safe-haven asset as the Iran war approaches its second week, amid growing signs that the military conflict in the Middle East could widen.

US President Donald Trump said Wednesday that Washington is in a “very good position” in its war with Iran and that the United States will pay “very close attention” to the Strait of Hormuz. US Central Command also said in a statement that the US military had “destroyed” 16 Iranian minelaying vessels near the strait.

Three sources familiar with the matter told Reuters that US intelligence indicates Iran’s leadership remains largely intact and is not at risk of collapse anytime soon after nearly two weeks of sustained US and Israeli bombardment.

Global oil prices

Brent crude surged more than 8% on Thursday, extending gains for the third consecutive day to trade again above $100 per barrel after Iran launched new attacks on oil tankers and energy storage facilities.

Iran’s military command said Wednesday that the world should prepare for oil prices reaching $200 per barrel after three additional ships were attacked in the besieged Gulf.

Analysts said the International Energy Agency’s proposal to release 400 million barrels from oil reserves — a record amount — is insufficient to ease fears of supply disruptions from the Middle East.

The Cboe oil volatility index rose sharply on Wednesday, reaching 121.01 points — its highest level since 2020 at the start of the COVID-19 pandemic — after the index increased in seven of the eight trading sessions since the current crisis began.

Rodrigo Catril, currency strategist at National Australia Bank in Sydney, said: “President Trump continues to say, even overnight, that the war will end soon — it is unclear whether that is really within his control.”

Catril added that energy price volatility is likely to persist: the Strait of Hormuz is not only about oil, but also liquefied natural gas and fertilizers, and the longer shipping disruptions continue, the greater the upward pressure on prices.

US interest rates

According to the CME FedWatch tool from CME Group, markets are pricing a 99% probability that US interest rates will remain unchanged at the March meeting, while the probability of a 25-basis-point rate cut stands at 1%.

Markets are also pricing an 89% probability that rates will remain unchanged at the April meeting, with an 11% probability of a 25-basis-point rate cut.

To reassess these expectations, investors are closely watching upcoming US economic data, particularly the Personal Consumption Expenditures report scheduled for release on Friday.

Gold outlook

Peter Grant, vice president and senior metals strategist at Zaner Metals, said the gold market appears to be swinging between safe-haven demand driven by the war and concerns that interest rates may remain higher for longer.

Analysts at Standard Chartered added that several weeks of downward pressure on gold is not unusual during periods of liquidity demand. They maintained their long-term positive outlook, expecting gold to resume its upward trend once the current profit-taking phase passes.

SPDR fund

Holdings of the SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, increased by 3.71 metric tons on Wednesday, marking the second consecutive daily increase and bringing total holdings to 1,077.28 metric tons, the highest level since March 4.

The euro declined in European trading on Thursday against a basket of global currencies, extending losses for the third consecutive day against the US dollar and approaching a four-month low as investors continued to favor the US currency as a preferred safe-haven asset amid escalating military confrontations in the Middle East.

Global oil prices surged again above $100 per barrel after Iran’s Revolutionary Guard launched attacks on several oil tankers in the Strait of Hormuz, while Tehran warned the world to prepare for oil prices reaching $200 per barrel.

Price Overview

Euro exchange rate today: the euro fell 0.3% against the US dollar to $1.1532, down from the session opening level of $1.1567, after touching a high of $1.1574.

The euro ended Wednesday’s session down 0.4% against the dollar, marking the second consecutive daily loss due to growing speculation about increasing inflationary pressures on policymakers at the Federal Reserve.

US Dollar

The dollar index rose about 0.3% on Thursday, extending gains for the third consecutive session and approaching its highest level in four months, reflecting continued strength in the US currency against a basket of global currencies.

US President Donald Trump said on Wednesday that Washington is in a “very good position” in its war with Iran and that the United States would “pay very close attention to the Strait of Hormuz.”

US Central Command also said in a statement that the US military had “destroyed” 16 Iranian minelaying vessels near the Strait of Hormuz.

Three sources familiar with the matter told Reuters that US intelligence assessments indicate Iran’s leadership remains largely intact and is not at risk of collapse anytime soon after nearly two weeks of sustained US and Israeli bombing.

Global oil prices

Brent crude surged more than 8% on Thursday, extending gains for the third consecutive day and trading again above $100 per barrel after Iran launched new attacks on oil tankers and energy storage facilities.

Iran’s military leadership announced Wednesday that the world should prepare for oil prices reaching $200 per barrel after three more vessels were attacked in the besieged Gulf.

Analysts said the International Energy Agency’s proposal to release 400 million barrels from strategic reserves — a record amount — is insufficient to calm concerns about supply disruptions from the Middle East.

The Cboe Oil Volatility Index rose sharply on Wednesday to 121.01 points, its highest level since 2020 at the start of the COVID-19 pandemic, after the index increased in seven of the past eight trading sessions since the current crisis began.

Opinions and analysis

Rodrigo Catril, currency strategist at National Australia Bank in Sydney, said: “President Trump continues to say — even overnight — that the war will end soon. It is not clear to us whether that is really within his control.”

Catril added that energy price volatility is likely to persist: “The Strait of Hormuz is not only about oil — it also involves liquefied natural gas and fertilizers. The longer shipping remains disrupted, the greater the pressure on prices.”

European interest rates

Money markets are pricing a 5% probability that the European Central Bank will cut interest rates by 25 basis points at the March meeting.

However, amid rising global energy prices, data from the London Stock Exchange Group suggests the European Central Bank is now expected to raise interest rates in June.

To reassess these expectations, investors are awaiting further economic data from the eurozone on inflation, unemployment, and wage growth.