Brent jumps to US$119.50 as analysts call it the largest oil supply shock ever
Oil just delivered what one expert calls “the largest oil supply shock ever” – and markets are forcing portfolio managers to decide how much Middle East risk they can really stomach.
Global markets are reacting to violent swings in crude tied to the war involving the US, Israel and Iran and the effective shutdown of the Strait of Hormuz, a route for about a fifth of the world’s oil.
CBC reports that Brent crude surged to US$119.50 a barrel, its highest since shortly after Russia’s 2022 invasion of Ukraine, before collapsing below US$90 late in the day.
West Texas Intermediate briefly topped US$119.48 before following the same path.
According to CBC, fears of missile and drone attacks have “all but stopped tanker traffic” through the strait.
Tankers from Saudi Arabia, Kuwait, Iraq, Qatar, Bahrain, the United Arab Emirates and Iran have largely halted movements, while major producers such as Iraq, Kuwait and the UAE have cut output as onshore storage fills.
Iran, Israel, and the United States have attacked oil and gas facilities, and Bahrain’s national oil company has declared force majeure after an Iranian strike set its refinery complex ablaze.
Nicholas Mulder of Cornell University told CBC that “in economic terms, this is already the largest oil supply shock ever,” estimating that the world is losing “three to four times as many barrels of oil” as during the 1973 and 1979 crises.
Oil and gas strategists at Macquarie Research, warn that if the Strait of Hormuz stays closed for only a few weeks, crude could reach US$150 a barrel or higher, surpassing the pre‑2008 peak of about US$147.
Oxford Economics, also quoted by CBC, expects an average price near US$80 this quarter but says “the risk of a more prolonged crisis has clearly increased.”
The shock is hitting energy‑importing Asia and emerging markets first.
The New York Times reports that South Korea’s benchmark index dropped almost 6 percent, Japan’s Nikkei 225 fell 5.2 percent, Taiwan’s Taiex lost more than 4 percent and Hong Kong’s Hang Seng declined over 1 percent as oil spiked above US$100.
The paper notes that Japan imports around 90 percent of its oil through the Strait of Hormuz, South Korea roughly 70 percent of its crude from the Middle East and Taiwan about 60 percent of its oil and a third of its natural gas via the strait.
Reuters said emerging market equity funds have turned into some of the worst performers across asset classes this month as investors move to reduce risk.
Using LSEG Lipper data, Reuters says funds focused on Pakistan, Chile, Greece, Colombia, Argentina, the United Arab Emirates and Saudi Arabia sit among the biggest decliners across 518 categories.
MSCI’s emerging markets index has fallen more than 6 percent this week, versus a 2.2 percent drop for MSCI World and 0.7 percent for MSCI United States, while inflows to about 13,000 EM equity funds have slowed to US$5.8bn, the weakest in seven weeks.
Goldman Sachs believes that if the disruption proves short‑lived, the broader earnings hit may stay limited because of a “relatively resilient sector mix,” and it maintains a forecast for 25 percent growth in MSCI EM earnings per share in 2026.
Still, Goldman Sachs warns that higher starting valuations after last year’s rally leave EM equities “vulnerable to near‑term correction risks.”
The macro damage could be deeper if oil stays high.
ING analysts told Reuters that a “mere 10 percent rise in oil prices can deteriorate current account balances (for emerging markets) by 40‑60 basis points,” singling out Thailand, South Korea, Vietnam, Taiwan and the Philippines as most exposed.
Goldman Sachs estimates that a supply‑driven move in Brent from US$70 to US$85 would add about 0.7 percentage points to inflation across emerging Asia, shave roughly 0.5 points off growth and widen current‑account deficits almost everywhere in the region.
Citigroup, also cited by Reuters, warns that a prolonged shock could “aggressively de‑anchor” inflation expectations, with low‑reserve countries such as Argentina, Sri Lanka, Pakistan and Turkey facing heightened risks of capital outflows and currency slides.
On Wall Street, AP News reports that Monday turned into a “manic” session: the S&P 500 fell as much as 1.5 percent before closing up 0.8 percent at 6,795.99, the Dow swung from a nearly 900‑point loss to a 239‑point gain and the Nasdaq rose 1.4 percent.
In remarks reported by CBS and picked up by AP News, US President Donald Trump said “the war is very complete, pretty much” and argued that Iran has “no navy, no communications, they’ve got no Air Force.”
He added that he is “thinking about taking” the Strait of Hormuz “over.”
