Oil Prices Skyrocket to Historic Monthly High as Iran Conflict Intensifies
The Brent crude oil price is poised to achieve its most significant monthly surge on record in March, driven by severe market disruptions stemming from the ongoing war involving Iran. According to data from LSEG, Brent crude has escalated by an astonishing 51% since the beginning of the month, surpassing the previous record of 46% set in September 1990 following Saddam Hussein's invasion of Kuwait, which triggered the first Gulf War.
Market Turmoil and Supply Constraints
Brent crude concluded at $112.57 per barrel on Friday, a sharp increase from $72.48 per barrel on February 27, just before the commencement of the US-Israeli military actions against Iran. During March, Brent reached a peak of $119.50 per barrel, its highest level since June 2022. This spike occurred after Iran effectively closed the Strait of Hormuz, a critical maritime passage that typically facilitates the transit of one-fifth of the world's oil and gas supplies.
In the United States, crude prices also experienced substantial gains, with West Texas Intermediate rising by 48%, positioning it for its strongest monthly performance since May 2020, a period marked by economic upheaval due to the Covid-19 pandemic. Despite a coordinated release of 400 million barrels of oil from emergency reserves announced on March 11, oil prices continued to climb throughout the month. Analysts at BloombergNEF estimate that the Middle East conflict has removed approximately 9 million barrels of oil per day from global supply.
Investor Sentiment and Geopolitical Factors
Former President Donald Trump's influence on oil prices appeared to wane as the conflict persisted. Early in March, his assertions regarding progress in negotiations temporarily reduced crude prices, but by late March, his declaration of a 10-day extension for Iran to reopen the Strait of Hormuz was followed by rising oil prices and declining stock markets. Oil emerged as the top-performing asset during a highly volatile month, overshadowing losses in shares, government bonds, and precious metals.
Gold, traditionally viewed as a safe haven against inflation, failed to uphold its reputation. The spot price of gold plummeted by nearly 15% since the start of March, on track for its worst monthly performance since 2008 and the fifth-largest monthly decline in the past half-century. Some investors may have been compelled to sell gold to cover losses or margin calls on other market positions. Additionally, gold faced pressure from the Turkish Central Bank's sale of approximately $3 billion in bullion last week, which reduced its reserves by almost 50 tonnes to 772 tonnes in efforts to stabilize the Turkish lira.
Global Stock Market and Bond Performance
Wall Street experienced significant losses in March, with the Dow Jones Industrial Average entering a correction by the end of last week, falling more than 10% below its record high. Stock declines persisted despite Trump's latest extension on planned strikes against Iran's energy infrastructure, as investors anticipated prolonged disruptions to oil supplies from the Gulf region. Fawad Razaqzada, an analyst at City Index, noted, "Markets appear to be placing less weight on White House jawboning and focusing more on the underlying supply risks."
Britain's stock market also endured a challenging month, with the FTSE 100 index dropping over 8%, heading for its worst monthly performance since March 2020 when Covid-19 destabilized financial markets. Nearly all gains from January and February were erased, with the FTSE 100 closing below 10,000 points last week. UK government bonds weakened throughout March as traders revised forecasts for Bank of England interest rate cuts this year. As bond prices fell, the yield on 10-year UK bonds surged by 17% to nearly 5%, marking the largest monthly percentage increase in borrowing costs since September 2022, when Liz Truss's mini-budget prompted a bond sell-off.
Other European government bonds were similarly affected, with Italian two-year debt on track for its worst month since May 2018. Modupe Adegbembo, an economist at Jefferies, highlighted that European governments are operating from a weaker fiscal position compared to the 2022 energy price shock, limiting their capacity for large-scale fiscal intervention. "As a result, more of the adjustment is likely to fall on demand," Adegbembo added, indicating a negative outlook for economic growth.
