Oil surges to $122 a barrel as Trump signals extended Hormuz blockade

Brent crude climbs to four-year high on Hormuz uncertainty

Brent crude oil surged past $122 a barrel on Wednesday, its highest level since 2022, after Donald Trump declared he had no intention of lifting the US blockade of the Strait of Hormuz. The global benchmark rose almost 10% to $122.15 a barrel, extending a winning streak to eight consecutive sessions, the longest in nearly four years. US marker West Texas Intermediate gained 7% to $106.88 a barrel.

The rally accelerated after Trump told journalists he intended to maintain the blockade until Iran agreed to end its nuclear programme. "The blockade is somewhat more effective than the bombing. They are choking like a stuffed pig," Trump said. "They want to settle. They don't want me to keep the blockade. I don't want to, because I don't want them to have a nuclear weapon."

Traders had entered the week with cautious optimism that the three-week ceasefire following the US and Israel's military operations against Iran might allow energy flows from the Gulf to resume. Those hopes faded rapidly after Trump's remarks ruled out a near-term resolution.

The Strait of Hormuz, which carried approximately 20% of the world's oil before the conflict began, remains close to a standstill. A combination of Iranian threats to commercial shipping and active US naval enforcement has kept tanker traffic severely suppressed throughout the conflict. For more context on how the military operation that triggered this crisis unfolded, see Tezons reporting on the US and Israel joint strikes on Iran.

Ole Hansen, head of commodity strategy at Saxo Bank, said the supply picture was deteriorating by the day. "Oil will rise several dollars every day as long as there is no end in sight. Markets are tightening and prices need to reflect that."

Why markets now expect months, not weeks, of disruption

Hamad Hussain of Capital Economics noted that the possibility of a sudden reopening of the strait had previously acted as a ceiling on prices. That ceiling is now lifting. Hussain said markets were responding to increased speculation that the US blockade of the Strait of Hormuz could last for months, rather than days or weeks.

Analysts warned prices could climb further for as long as Gulf energy supplies remained blocked, with no credible diplomatic pathway currently visible. The outlook for Iranian compliance with any nuclear agreement remains deeply uncertain, and Trump's public statements have given traders little reason to price in an imminent resolution.

The United Arab Emirates announced on Tuesday that it was leaving Opec, prompting brief speculation about whether additional production could offset the supply crunch. Traders dismissed the development. The UAE has been producing well below its Opec quota since the conflict began, because Iranian threats to shipping through the strait have made export routes unreliable. HSBC analysts noted that if the strait reopened, the UAE could potentially raise output to 4.5 million barrels per day or above, more than one million barrels above its pre-war production level, but that scenario remains contingent on the blockade ending.

Fuel costs rise sharply across major economies

The sustained oil price surge is feeding through to consumers in major economies. US petrol prices reached $4.23 a gallon on Wednesday, according to motoring group AAA, their highest level since the military operations against Iran began. The increase is adding to household cost pressures and reviving concerns about a damaging new round of inflation in economies that have only recently stabilised price growth.

European fuel markets are facing parallel strain. Airlines operating across the region have already flagged the risk of jet fuel shortages if the strait remains closed, given the concentration of refining and distribution infrastructure dependent on Gulf flows. Tezons has covered the EU airline industry's warnings over jet fuel shortages as the disruption continues to widen.

Rising energy costs contributed to a sharp sell-off in European government bonds on Wednesday. Investors are repricing central bank expectations upward as the inflation implications of sustained high oil prices become clearer. The two-year UK gilt yield crossed above 4.5% for the first time since late March, climbing 0.1 percentage points on the day. Italian yields of the same maturity rose by a similar amount.

Derivative markets now imply traders expect three quarter-point interest rate increases from the European Central Bank before the end of the year. The Bank of England is priced for two to three additional rate rises by December, a sharp revision from expectations held earlier in the conflict.

Federal Reserve holds rates as oil uncertainty clouds outlook

The US Federal Reserve held interest rates on Wednesday, maintaining its existing policy stance despite the mounting pressure from energy prices. The central bank acknowledged in its statement that the oil supply crisis in the Gulf was contributing to a high level of uncertainty about the economic outlook.

The decision was not without internal disagreement. Some voting members of the rate-setting committee dissented from language that signalled openness to future rate cuts, reflecting divisions over whether the war's inflationary effects would be temporary or persistent. The Fed's ability to act on either side of the inflation-growth trade-off is constrained by an external shock largely outside the reach of monetary policy.

The oil rally contributed to a sell-off in US long-term debt. Yields on the US 30-year Treasury bond crossed 5% for the first time since last summer, as traders positioned for lasting price pressures in the American economy. A sustained period of elevated oil prices would complicate the Fed's path toward any future rate reduction.

What no end-date means for supply planning

The absence of any clear timeline for resolving the Hormuz blockade is the central problem for energy markets. Unlike a short-term supply disruption, where strategic reserves and demand adjustments can bridge the gap, an open-ended blockade of a route carrying a fifth of global oil supply requires a structural repricing of energy costs across forward curves, supply contracts, and consumer spending assumptions.

Producers outside the Gulf are benefiting from the price surge but face limits on how quickly they can expand output. The US shale sector requires sustained pricing above certain thresholds to justify the capital spending needed to increase production materially, and lead times for new drilling activity mean supply relief from that source is measured in quarters, not weeks.

Meanwhile, the diplomatic track has produced no visible momentum. Trump's framing of the blockade as a tool to compel Iranian nuclear concessions places the resolution of the oil crisis inside a negotiation with no agreed format, no neutral mediator, and a history of failed prior attempts stretching back decades.

What this means for energy costs and global inflation

For consumers, businesses, and policymakers in oil-importing economies, the core risk is now a prolonged inflation shock arriving at a moment when central banks have limited room to absorb it without tipping growth lower. The UK, eurozone, and US all face the same dilemma: interest rates remain elevated from the previous inflation cycle, fiscal headroom is constrained, and a new external price shock is arriving before the previous one has fully cleared.

Bond markets are already repricing. If the blockade extends by a further four to six weeks, oil market analysts suggest prices could test levels not seen since the post-pandemic supply crunch of 2021 to 2022. Central banks will face renewed pressure to choose between defending inflation targets and protecting growth, a trade-off that has no clean answer when the source of inflation is a geopolitical disruption beyond their control. For energy markets and financial policymakers, the message from Wednesday's trading is clear: the Hormuz crisis is no longer a short-term shock to be waited out.