Oil rises as risks of prolonged Mideast conflict fan supply worries

Oil prices skyrocketed on Tuesday after Iran signaled a willingness to retaliate against any fresh U.S. strikes on its assets, sparking fears of a drawn-out conflict in the Middle East and a potential disruption to oil supplies. Brent crude futures surged by 49 cents, or 0.5%, to $97.49 a barrel, while U.S. West Texas Intermediate crude rose by $1.44, or 1.6%, to $92.92 a barrel.

Following Monday's U.S. holiday, West Texas Intermediate was catching up to Brent, which had initially capitalized on the weekend's heightened tensions.

Suvro Sarkar, head of energy research at DBS Bank, warned that the recent intensification of hostilities between the U.S. and Iran could fundamentally alter the perception of oil price risks for the remainder of 2026 and into 2027. Iran had threatened the U.S. with "economic warfare" and claimed it had launched an advanced missile at U.S. warships, escalating tensions days after both nations exchanged new strikes.

The U.S. had targeted three Iranian oil tankers, including one near Kharg Island, Iran's primary oil export hub, on Saturday, following strikes by Iran's Revolutionary Guards on U.S. warships in the region. Analysts anticipate that the ongoing Middle East conflict could keep Persian Gulf supply constrained throughout 2026, with a full recovery to pre-war throughput only expected in late Q1 or early Q2 2027.

Goldman Sachs revised its forecasts for Brent and West Texas Intermediate prices, adding $5 to $85 and $80, respectively, for December 2026, and to $80 and $75, respectively, for 2027. This adjustment reflects the firm's assumption that shipping disruptions in the Middle East will persist into 2027. Ed Meir, an analyst at Marex, also projected that as long as the war persists due to unresolved issues, crude oil prices will likely remain elevated through the end of the year.