The continuing conflict involving the United States and Iran is keeping global oil markets under pressure as attacks, shipping disruptions and uncertainty around the Strait of Hormuz threaten the movement of crude and refined petroleum products from the Middle East.
Oil prices have remained highly sensitive to developments in the conflict, although prices eased in recent days as additional Saudi crude became available and diplomatic contacts between Washington and Tehran raised hopes of reduced disruption.
Brent crude futures settled at $100.34 a barrel on September 21, down 3.4%, before falling further on September 22 as Saudi export routes improved and vessel movements through the Strait of Hormuz increased.
The price movements illustrate how quickly expectations about supply can change when a major energy-producing region is affected by conflict.
Strait of Hormuz remains the key pressure point
The Strait of Hormuz is at the centre of concerns about global oil supplies.
Before the US-Israeli war against Iran began in late February, about 20% of global oil supply moved through the waterway, according to Reuters.
The strait connects the Persian Gulf with the Gulf of Oman and the wider Indian Ocean, making it one of the world’s most important routes for crude oil and petroleum products.
A prolonged disruption would therefore affect producers, shipping companies, refineries and consumers well beyond the Middle East.
Recent shipping data show how severely traffic has been affected.
Reuters reported that only two commodity vessels crossed the Strait of Hormuz on September 21, compared with a pre-conflict average of about 125 large commercial vessels a day.
The figures may not capture every vessel because some ships have switched off their tracking systems, but the available data nevertheless indicate a substantial decline in commercial traffic.
Iran signals possible reopening
Iran has recently introduced a potential diplomatic route toward restoring shipping through the strait.
A senior Iranian official told Reuters that Tehran was prepared to reopen the Strait of Hormuz within a week if the United States reduced military pressure and lifted its blockade of Iranian ports.
The Iranian proposal was presented while the country’s delegation attended the UN General Assembly in New York.
Iranian officials said a proposal for ending hostilities had already been submitted to Washington through mediators on September 16.
The announcement contributed to a decline in oil prices because markets interpreted the possibility of restored shipping as a potential reduction in supply risk.
However, the reopening remained conditional and had not occurred at the time of the report.
Saudi Arabia increases alternative supply routes
Saudi Arabia has also taken steps to maintain crude exports despite disruption to regional shipping.
Reuters reported that the kingdom restarted its East-West oil pipeline and planned to resume exports from the Red Sea port of Yanbu.
The pipeline provides Saudi Arabia with an alternative route that can reduce reliance on the Strait of Hormuz.
Saudi crude shipments through the strait have nevertheless continued.
The combination of alternative infrastructure and remaining maritime exports has helped prevent an even larger reduction in global supply.
Houthi attacks add another layer of risk
The conflict has also affected energy infrastructure beyond Iran.
Iran-backed Houthi forces in Yemen have attacked Saudi targets, including energy infrastructure, adding pressure to another important regional supply route.
Reuters reported that Houthi attacks had threatened Saudi Arabia’s East-West pipeline, increasing concerns about the kingdom’s ability to move crude toward Red Sea export facilities.
The Red Sea route is strategically important because it provides an alternative path for Saudi oil that does not require all exports to pass through Hormuz.
Damage or threats to both routes increase the vulnerability of regional energy exports.
Oil prices have moved sharply
The conflict has produced significant swings in crude prices.
Brent rose above $100 a barrel earlier in September as attacks intensified and concerns about regional supply increased. Reuters reported that Brent had reached its highest level in six weeks on September 7.
Prices subsequently retreated as markets received signals that some supply could be restored.
On September 21, Brent’s November contract settled at $100.34 a barrel while US West Texas Intermediate settled at $95.78.
The following day’s decline reflected improved crude flows and expectations of possible diplomatic progress.
But lower prices do not necessarily mean the underlying supply risk has disappeared.
Shipping costs remain elevated
Even when crude continues moving, the cost of transporting it has increased.
Reuters reported that producers and traders have increasingly relied on ship-to-ship transfers near Oman to keep Middle Eastern crude flowing despite disruptions to established routes.
The additional shipping arrangements have helped maintain exports, but they have also increased transportation costs and complicated the global oil trade.
Higher freight costs can affect the delivered price of crude even when the benchmark oil price itself declines.
For refineries and fuel importers, transportation costs are therefore an important part of the overall supply picture.
Energy markets are watching diplomacy
Diplomatic developments have become an important factor in oil-price movements.
President Donald Trump has said the United States and Iran could still reach a settlement, while Iranian officials have indicated that Tehran is prepared to discuss conditions for reducing tensions.
Markets have responded to those signals because an agreement could potentially restore shipping through Hormuz and reduce the risk premium attached to Middle Eastern crude.
But no comprehensive US-Iran settlement had been announced.
The possibility of diplomacy therefore remains a market factor rather than a guarantee of restored supply.
Conflict affects refined petroleum products
The impact extends beyond crude oil.
Disruptions to crude supplies and shipping routes can affect the availability and cost of gasoline, diesel, jet fuel and other refined products.
Refineries depend on reliable crude supplies, while fuel distributors depend on functioning maritime and pipeline networks.
Any prolonged disruption could therefore affect transportation and manufacturing costs.
The effect would vary between countries depending on their domestic production, refinery capacity, inventories and dependence on imported petroleum products.
Global inflation risks remain
Higher oil and fuel costs can feed into inflation through transportation, electricity generation, manufacturing and other sectors.
The effects are particularly important for countries that import most of their petroleum products.
When crude prices rise, fuel costs can increase directly. Higher transport costs can then raise the cost of moving food and other goods.
However, the size and duration of the inflationary effect depend on how long oil prices remain elevated and how much of the increase is absorbed by producers, distributors and governments.
Nigeria remains exposed to global oil movements
The developments are also relevant to Nigeria because crude oil remains a major source of export earnings and government revenue.
Higher international crude prices can increase the value of Nigerian oil exports when production and export volumes are maintained.
At the same time, Nigeria’s domestic petroleum market is increasingly linked to international crude economics despite the expansion of domestic refining.
The country’s Dangote refinery has significantly increased domestic refining capacity and has also expanded exports of petroleum products. But crude oil prices and international market conditions can still influence the economics of refined products.
Recent Nigerian petrol-price increases have already occurred against a backdrop of higher international oil prices.
Higher prices are not automatically beneficial for Nigeria
A rise in crude prices can provide additional revenue to an oil-producing country, but the effect depends on production levels, government revenue arrangements, exchange rates, domestic consumption and other fiscal factors.
Nigeria’s petroleum sector also faces issues involving crude supply, production levels and the cost of moving petroleum products.
Therefore, international oil prices should not be treated as a direct measure of Nigeria’s overall economic performance.
The relationship between global crude prices and domestic fuel prices has also become more complex as local refining capacity expands.
Shipping disruption could affect African economies
The wider consequences could extend across Africa.
Many African economies import refined petroleum products, making them sensitive to increases in international fuel prices and shipping costs.
Higher diesel and gasoline costs can increase transportation expenses and put pressure on businesses and households.
Countries with limited domestic refining capacity can be particularly exposed to changes in international product prices.
For food-importing countries, higher transportation and energy costs can also feed into food prices.
The extent of the impact will vary according to each country’s fuel-import dependence, exchange rate and government pricing policies.
Markets remain sensitive to every new development
The recent oil-price decline demonstrates that markets are responding not only to actual supply changes but also to expectations.
Reports of additional Saudi exports and possible diplomatic progress have reduced some immediate concerns.
At the same time, attacks on vessels and energy infrastructure continue to create uncertainty.
Reuters reported that two vessels were attacked in the Strait of Hormuz on September 21, including an oil tanker and an LPG tanker. Both vessels continued moving after the incidents.
The incidents show that maritime security remains a significant concern even as some oil continues to move.
The central question is whether disruption lasts
The effect of the Middle East conflict on oil markets will ultimately depend heavily on how long disruptions continue.
A short-lived interruption could be absorbed through alternative routes, inventories and additional production.
A prolonged disruption affecting multiple export routes would place greater pressure on available supplies.
The situation becomes more complicated if attacks spread to additional energy infrastructure or if commercial shipping through Hormuz falls further.
Conversely, a durable diplomatic agreement that restores normal shipping could reduce the geopolitical risk premium in oil prices.
No lasting market relief yet
For now, the global oil market remains caught between two competing forces.
On one side are military attacks, reduced shipping through the Strait of Hormuz and threats to regional energy infrastructure.
On the other are additional Saudi supply routes, continued movement of some oil tankers and diplomatic signals suggesting that the United States and Iran could still negotiate.
Oil prices have therefore moved sharply in response to each new development.
The recent decline in crude prices represents improved market expectations, but it does not by itself establish that the underlying supply disruptions have been resolved.
What to watch next
Several developments will determine the next direction of the energy market.
The first is whether Iran actually reopens the Strait of Hormuz under the conditions it has outlined.
The second is whether the United States and Iran can reach an agreement that reduces military activity.
The third is whether Saudi Arabia can sustain alternative export routes and protect its energy infrastructure from further attacks.
Markets will also monitor vessel traffic, crude inventories, refinery operations and developments involving Iran-backed groups in the region.
For oil-importing countries, the cost of refined petroleum products will remain an important indicator of how the conflict is affecting their economies.
For producers such as Nigeria, international crude prices will continue to matter for export earnings and public finances.
Middle East conflict keeps energy markets uncertain
The conflict involving the United States and Iran has transformed the Strait of Hormuz from a regional security issue into a central concern for the global energy market.
Reduced vessel traffic, attacks on energy infrastructure and uncertainty over regional exports have increased supply risks.
At the same time, Saudi Arabia’s alternative export arrangements and the possibility of diplomatic progress have prevented the market from moving in only one direction.
The next major shift could come from either diplomacy or another escalation.
Until shipping through Hormuz and other regional routes returns closer to normal, oil markets are likely to remain highly sensitive to developments across the Middle East.
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