Oil Prices Surge Amid Middle East Conflict and Production Cuts

Brent crude oil prices have surged past $90 per barrel, marking the highest weekly gain since the onset of the COVID-19 pandemic six years ago. This increase is driven by escalating conflict in the Middle East and production cuts by key oil-producing nations.

Reports indicate that Kuwait has begun reducing oil production at certain fields due to limited storage capacity. This development has contributed to Brent crude reaching as high as $91.89 per barrel on Friday, up from approximately $72.50 before the recent hostilities began.

The international benchmark has risen over 25% since the U.S.-Israel attack on Iran last weekend, marking the largest weekly jump since April 2020. Concerns are mounting over a broader storage crisis in the Middle East, potentially leading major oil producers to halt extraction. Holding facilities in Saudi Arabia and the United Arab Emirates could reach capacity within 20 days, according to consultants at Kpler, possibly necessitating further shutdowns.

Qatar's energy minister has warned that if the conflict continues, all Gulf energy exporters might cease production within weeks, potentially driving oil prices to $150 per barrel. Even if hostilities end immediately, it could take "weeks to months" for Qatar to resume liquefied natural gas exports after an Iranian drone strike damaged a key terminal. Qatar accounts for about 20% of global LNG exports.

The Strait of Hormuz, a vital trade route for approximately 20% of the world's oil and liquefied natural gas, has been effectively closed due to the conflict. Iran's Islamic Revolutionary Guard Corps has threatened to "set ablaze" any Western tanker attempting to pass through the strait. At least nine vessels have been attacked in the Gulf since the U.S. and Israel began strikes on Iran on February 28, according to Lloyd's List.

The surge in oil prices has fueled inflation concerns, impacting global markets. In the UK, the FTSE 100 share index fell by more than 5% this week, its worst performance since April 2025. Airline stocks have been particularly affected, with IAG, the parent company of British Airways, dropping over 12%, and low-cost airline Wizz Air losing about 20% of its value after issuing a profit warning.

While the U.S. dollar has strengthened since the Iranian attacks began, gold prices have fallen by about 3.5% during the week to below $5,100 an ounce.