Iran War Disrupts Global Oil Markets, Leaving Policymakers Without Compass

The Iran war has caused significant disruptions in global oil markets, leading to a disconnect between physical crude prices and futures benchmarks. The blockade of the Strait of Hormuz has cut off nearly a fifth of global oil flows, triggering acute supply shortages in Asia, Europe, and other regions.

Despite the severe disruption, Brent crude futures have surged only 64% in March, setting a record monthly gain to a peak of $118 a barrel. However, physical crude prices have reacted more forcefully, with Dated Brent trading at $120 a barrel, about 65% above pre-war levels and the highest since 2022.

This disparity is baffling many traders and analysts, with some attributing it to market optimism that Trump will avoid prolonging the conflict. However, experts warn that this optimism flies in the face of reality on the ground, where Middle East oil production and exports would take months or years to recover even once Hormuz is fully reopened.

As a result, policymakers are facing a difficult task in navigating global oil markets without a reliable compass. The disconnect between physical barrels trading at $150 while futures imply relief around the corner has left consumers, companies, and policymakers vulnerable if the Hormuz disruption drags on and the futures market is forced to abandon its optimism.