Oil surges past $92 on US-Iran strikes, $120 scenario looms

Brent crude climbed above $92 a barrel on Tuesday, reaching levels not seen since early June, while West Texas Intermediate rose for a fourth consecutive session to approach $85. The price jump followed U.S. military strikes on targets in southern and western Iran. These attacks prompted retaliatory Iranian strikes on U.S. facilities in Bahrain, Kuwait, and Jordan.

The direct clashes have severely disrupted tanker traffic through the Strait of Hormuz, the world's most critical oil transit chokepoint. Vessel movements there have fallen well below pre-conflict levels since a previous ceasefire collapsed earlier this month. Compounding the supply fears, Iran-aligned Houthi rebels in Yemen threatened to target ships carrying Saudi oil through the Bab el-Mandeb Strait and announced a naval blockade.

Traders are increasingly pricing in the prospect of prolonged disruptions rather than expecting a swift diplomatic resolution. Tehran has introduced new conditions for restarting negotiations, effectively delaying any normalization of Persian Gulf shipping. Consequently, Red Sea routes have taken on greater importance as alternative pathways for affected Gulf crude cargoes trying to reach international buyers.

"Crude oil has once again started reflecting geopolitical risks," said Anindya Banerjee, Head of Commodity Research at Kotak Securities. "Any strike on major Gulf export infrastructure could force a retest of $95-100 and beyond."

Goldman Sachs warned that Brent could spike to $120 a barrel if the disruptions at the Strait of Hormuz persist. The bank's base case assumes the tensions will eventually de-escalate.

Even if hostilities cease immediately, a significant floor has formed under the market. "At the current point there are no signs of a ceasefire again. But in case there is a ceasefire immediately imposed, we don't expect Brent oil prices to fall beyond $70 per barrel. It is likely to remain the lower support for the near term," said Pranav Mer, Senior Vice President, Currency and Commodity at JM Financial.

For global markets, the return of a substantial geopolitical risk premium to oil pricing alters the inflation and monetary policy calculus. A sustained move toward $100 per barrel would threaten to reverse recent progress on disinflation, pressuring central banks to maintain restrictive interest rates and creating headwinds for economic growth.