Tuesday, March 10
Global crude oil markets have experienced extreme volatility in recent days as geopolitical tensions in the Middle East triggered sharp price swings, followed by a sudden correction after de-escalation signals.
On the Multi Commodity Exchange of India (MCX), crude oil futures fell sharply on Tuesday, dropping nearly 12% to around Rs 7,752 per barrel after prices had surged dramatically earlier in the week.
Strait of Hormuz disruption drove initial rally
The surge in oil prices was primarily triggered by escalating conflict involving Iran, the United States, and Israel, which led to major disruptions in shipping through the Strait of Hormuz.
The strait is one of the world’s most critical energy chokepoints, handling roughly 20–30% of global seaborne crude oil flows, equivalent to about 16–20 million barrels per day.
Since the escalation began in late February, tanker traffic through the route reportedly dropped sharply, with daily crossings falling from typical levels of 20–30 vessels to only a handful.
Several shipping companies and insurers withdrew war-risk coverage for tankers passing through the region, making the route extremely risky and expensive for global operators.
Selective flows continue for Iranian exports
Despite the disruption, satellite tracking and shipping data indicate that Iranian-linked tankers continue to load crude from export terminals such as Kharg Island, allowing Tehran to maintain limited oil exports, largely directed toward buyers willing to accept sanctioned cargo.
This selective flow means the strait is not fully closed but remains effectively inaccessible to most international shipping without significant risk.
The disruption has forced Gulf producers such as Saudi Arabia and the United Arab Emirates to consider alternative routes, including pipelines to Red Sea terminals or the Fujairah bypass pipeline.
Oil prices surged before correcting
The conflict pushed global oil benchmarks sharply higher in early March.
WTI crude surged close to $119–$120 per barrel, while Brent crude briefly crossed the $100 per barrel mark before easing.
These gains reflected panic buying and a sharp geopolitical risk premium being priced into the market.
However, prices later corrected to the $80–$90 per barrel range after comments from Donald Trump, who suggested that the conflict could end sooner than expected.
Markets interpreted the remarks as a sign of potential de-escalation and began unwinding speculative positions, leading to the sharp decline seen in crude futures.
Shipping costs and supply fears remain elevated
Even with the price correction, disruptions in shipping routes have pushed tanker rates to record highs earlier during the crisis, with some very large crude carrier (VLCC) routes exceeding $400,000 per day.
Global oil flows remain constrained as producers cut output, redirect shipments, or increase storage due to the uncertainty surrounding the strait.
Options market still signals upside risk
Despite the correction in spot prices, the derivatives market continues to signal concerns about further supply shocks.
Traders are paying unusually high premiums for call options on WTI crude futures, indicating that investors still see a significant risk of another price spike if tensions escalate again or shipping routes remain disrupted.
Some prediction markets are already pricing year-end oil prices above $120 per barrel, reflecting ongoing geopolitical uncertainty.
Impact on India
For India, which imports more than 80% of its crude oil requirements, these swings have significant implications.
Higher oil prices can widen the current account deficit and increase inflation pressures, while sudden price corrections provide temporary relief to energy-importing economies.
However, with tensions in the Middle East still unresolved, energy markets are likely to remain highly sensitive to geopolitical developments in the coming weeks.