Panic Grips Markets as Oil Prices Surge Overnight on Israel-Iran War Fears

Oil prices increased by more than 8% on Monday, March 2, 2026, hitting their highest levels in months, after Iran and Israel intensified attacks across the Middle East, damaging tankers and disrupting shipments from one of the world’s most critical energy-producing regions.

Futures for Brent crude climbed to an intraday high of Ksh 10,626 per barrel and were trading at Ksh 10,233, up Ksh 835 or 8.88% by 2305 GMT.

Meanwhile, West Texas Intermediate (WTI) jumped Ksh 691, or 8%, to Ksh 9,334 per barrel, after touching a session high of Ksh 9716.

The sharp move follows a dramatic escalation in hostilities after Israel launched a fresh wave of strikes on Tehran on Sunday.

Iran responded with further missile barrages, a day after U.S. President Donald Trump announced that Iranian Supreme Leader Ali Khamenei had been killed, deepening geopolitical uncertainty and rattling global markets.

Tanker Damage and Strait of Hormuz Fears

At least three tankers were reportedly damaged off the Gulf coast, and one seafarer was killed as vessels were caught in retaliatory strikes.

Shipping sources said most tanker owners, oil majors, and trading houses have suspended crude oil, fuel, and liquefied natural gas shipments through the Strait of Hormuz after Tehran warned ships against moving through the waterway.

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Roughly 20% of the world’s oil about 15 million barrels per day, passes through the Strait, making it one of the most critical choke points in global energy supply.

“While the military attacks are themselves supportive for oil prices, the key factor here is the closing of the Strait of Hormuz,” said Ajay Parmar, director of energy and refining at ICIS.

“We expect prices to open much closer to Ksh 12,900 a barrel and perhaps exceed that level if we see a prolonged outage of the Strait,” Parmar added.

Stephen Innes of SPI Asset Management emphasized:

“Roughly one-fifth of global oil and LNG (liquefied natural gas) flows squeeze through the Strait of Hormuz. This is not an obscure canal. It is the aorta of the global energy system.”

Analyst Insights and Market Outlook

“With the retaliatory action now evolving to attacks on oil tankers in the Strait of Hormuz, the threat on oil supplies has substantially risen,” ANZ analyst Daniel Hynes said.

Citi analysts expect Brent to trade between Ksh 10,320 and Ksh 11,610 a barrel this week amid the ongoing conflict.

“Our baseline view is that the Iranian leadership changes, or that the regime changes sufficiently as to stop the war within 1-2 weeks, or the U.S. decides to de-escalate, having seen a change in leadership and set back Iran’s missiles and nuclear program over the same time frame,” the analysts led by Max Layton said.

OPEC+ Response and Shipping Risks

Amid the conflict, OPEC+ agreed to a modest 206,000-barrel-per-day oil output boost for April.

“Every OPEC+ producer is essentially producing at capacity,” said RBC Capital analyst Helima Croft.

“The utilization of any spare barrels will be severely limited if critical waterways are rendered inoperable.”

Risks to commercial shipping have surged, with more than 200 vessels, including oil and liquefied gas tankers, dropping anchor around the strait and surrounding waters, according to shipping data.

The International Energy Agency (IEA) is actively monitoring events in the Middle East and coordinating with major producers and member governments on potential releases of strategic petroleum reserves (SPR), IEA Director Fatih Birol said.

Oil Inventories and Potential Market Responses

“Global total visible oil inventories stand at 7.827 million barrels now, near their historical median when expressed as covering 74 days of global demand,” Goldman Sachs analysts led by Daan Struyven said.

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“The oil market could draw inventories, deploy spare capacity once the Strait reopens, and potentially benefit from global SPR releases,” they added.

Analysts Warn of Ksh 12,900 Oil

Brent crude had already jumped nearly 10% in over-the-counter trading on Sunday, March 1st, as markets priced in the risk of extended supply disruptions.

Middle East leaders have warned Washington that” a war on Iran could drive oil prices beyond Ksh 12,900 per barrel,” said RBC analyst Helima Croft.

Barclays analysts echoed that view, saying prices could climb toward triple digits if disruptions intensify.

The surge in oil also lifted safe-haven assets, with gold rising as investors sought protection amid growing instability.

Analysts note that the trajectory of crude prices will depend largely on whether shipping through the Strait of Hormuz resumes normally or faces prolonged interruption.

Markets remain on edge, with energy traders closely monitoring developments in the Gulf as fears of a broader regional war threaten both oil supply and the global economic outlook.

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