Oil Hits $126 as Hormuz Tensions Spike; Inflation Fears Rise

Global oil markets shook on Thursday as Brent crude surged past the psychological barrier of $125 a barrel, reaching a peak of $126. This marks the highest level since mid-2022, driven by escalating tensions in West Asia and fears of a blockade at the Strait of Hormuz. For consumers, especially in major importing nations like India, this isn't just a number on a ticker—it's a direct threat to their wallets, reigniting fears of spiraling inflation.

The spike wasn't gradual. It was a violent reaction to geopolitical uncertainty. Reports indicate that supply disruptions caused prices to jump by 7% in a single session. Meanwhile, the US benchmark, West Texas Intermediate (WTI), climbed 3.3% to touch $110 per barrel. The volatility was palpable throughout the day; by 11:00 AM local time, Brent was already trading at $124.8, up 5.77%, while WTI sat at $109.3, reflecting a 2.25% gain. These double-digit percentage swings within hours highlight how fragile the current energy supply chain has become.

Geopolitical Standoff Drives Prices

At the heart of this turmoil is the standoff between the United States and Iran. Donald Trump, identified in reports as the US President at the time of these events, rejected Iran's proposal to reopen the Strait of Hormuz. Instead, directives were issued to maintain the blockade for an extended period. This hardline stance created a vacuum of certainty in the market. Traders, fearing a prolonged cutoff of one of the world's most critical oil chokepoints, bid prices up aggressively.

The twist came when diplomatic channels seemed to offer a glimmer of hope. Seyyed Abbas Araghchi, Iranian Foreign Minister, announced on social media platform X that the Strait would be opened for trade among all nations. The market reacted instantly and violently. Within hours, oil prices plummeted by 9.63%, crashing back down to $85.57 per barrel. This whiplash effect—surging to $126 and dropping to $85 in a matter of days—demonstrates that oil is no longer just a commodity; it's a political weapon.

Expert Forecasts: From $65 to $200

Analysts are divided on where things stand now, but the range of possibilities is staggering. Macquarie, the investment research firm, suggests that if supply constraints persist beyond April, Brent crude could climb as high as $150 per barrel. In the near term, they see $110 as a likely support level.

However, the outlook gets darker if the conflict escalates further. Wood Mackenzie, a global energy consultancy, warns of a worst-case scenario. If the Strait remains closed, global oil demand might drop by 6 million barrels per day due to economic contraction, yet prices could still skyrocket to $200 per barrel. They estimate this could trigger a global economic contraction of 0.4% in 2026.

On the optimistic side, Wood Mackenzie outlines a "Quick Peace" scenario. If warring parties reach a resolution by June, Brent crude could ease to $80 by the end of 2026 and fall further to $65 in 2027. The difference between peace and prolonged conflict is a $135 gap per barrel—a margin that dictates whether economies thrive or stall.

The Long Road to Recovery

Even if the Strait opens tomorrow, relief won't be immediate. S&P Global Energy reports that restoring normal energy production and supply chains will take at least seven months. Their analysis notes that this seven-month timeline is actually "quite optimistic." If infrastructure damage is severe or supply chain logistics fail to recover smoothly, the disruption could linger until late 2026 or even into 2027.

This delay matters because it means high prices aren't a temporary blip; they're a structural challenge for the foreseeable future. For countries heavily reliant on imports, this translates to sustained pressure on fuel costs, transportation expenses, and ultimately, consumer goods prices.

Impact on India and Global Consumers

For India, which imports over 85% of its crude oil, the implications are severe. A sustained price above $100 per barrel increases the import bill significantly, widening the trade deficit and putting pressure on the rupee. More directly, it fuels inflation. When diesel and petrol prices rise, so do the costs of vegetables, medicines, and manufactured goods. The fear mentioned in headlines about "inflation haunting us" is grounded in this direct transmission mechanism.

Second-round peace talks between Iran and the US are underway, offering a potential off-ramp from this crisis. But until a formal agreement is signed and enforced, markets will remain jittery. Investors are watching every tweet, every diplomatic statement, and every naval movement in the Persian Gulf.