War creating ‘largest’ oil shock in history as Iran hits new Gulf targets

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LONDON – The war in the Middle East is creating the biggest oil supply disruption in history, as unchecked Iranian attacks on oil terminals and cargo ships across the region again sent crude prices spiking above US$100 a barrel on March 12.

The Paris-based International Energy Agency (IEA), a world authority on energy markets, said the 13-day conflict “is creating the largest supply disruption in the history of the global oil market”, which will surpass those of the 1970s.

In its latest market report, the IEA said crude production was currently down by at least 10 million barrels per day, and there were “no signs of de-escalation in hostilities”.

With Gulf states slashing production and oil tankers prevented by Iranian threats and attacks from crossing the crucial Strait of Hormuz, benchmark oil prices have risen between 40 per cent and 50 per cent since the US and Israel set off the conflict by attacking Iran on Feb 28.

The Strait of Hormuz, through which a fifth of the world’s oil and liquefied natural gas passes, lies off Iran and is just 54km wide at its narrowest point.

Tehran has vowed that not one litre of oil will be exported from the Gulf while US-Israeli attacks continue.

New supreme leader Mojtaba Khamenei said on March 12, in his first public statement since taking Iran’s reins, that the Strait of Hormuz would remain closed.

He called on the Islamic republic’s oil-exporting neighbours to shut down US military facilities that they are hosting.

“I recommend that they close those bases as soon as possible, because they must have realised by now that the claim of establishing security and peace by America was nothing more than a lie,” he said.

Mr Khamenei vowed to avenge Iran’s “martyrs”, citing in particular the children killed by an apparent US missile strike at a school near an Iranian military base, and suggested “other fronts” could be activated without saying where those would be. Some Western officials said he could be referring to sleeper cells in Europe.

His written comments came as Iran continued to attack oil facilities across the Gulf and cargo ships near the Strait of Hormuz.

Iraq and Oman closed oil terminals on March 12 after two tankers were attacked and left burning off Iraq’s coast.

The Iraqi authorities said the two ships were attacked overnight by Iranian boats laden with explosives. At least one crew member was killed.

In another incident, German shipping company Hapag-Lloyd said projectile fragments hit the Liberia-flagged container vessel Source Blessing near the Strait of Hormuz.

Hapag-Lloyd said in an e-mailed statement that the ship, which it has time-chartered to Danish shipping group Maersk, was not directly hit, but it still caught fire.

Hours earlier, three other ships were struck in the Gulf. The Iranian Revolutionary Guards claimed responsibility for at least one of those attacks – on a Thai bulk carrier that was set ablaze because, the Guards said, it disobeyed their orders.

Onshore, images from Bahrain showed thick smoke rising after a strike on fuel tanks in Muharraq city, with residents told to stay inside and close their windows.

Drones caused damage again at Kuwait’s international airport, explosions were heard in downtown Dubai, and Saudi Arabia said it intercepted drones headed towards its Shaybah oil field and its embassy district.

Citibank said it would close most of its United Arab Emirates branches and financial centres until March 14 as a precaution, as banks in the region sent staff home in response to threats from Iran.

‘Stop-gap measure’

Mr Khamenei’s threats overshadowed an impending record release of strategic crude by the IEA. On March 11, the organisation’s 32 members agreed to unlock 400 million barrels of oil from reserves – their largest release ever.

“The coordinated emergency stock release provides a significant and welcome buffer, but in the absence of a swift resolution to the conflict, it remains a stopgap measure,” the IEA warned.

Oil prices have gyrated since the crisis began, rising to around US$120 a barrel, only to drop back.

Prices again topped US$100 a barrel on March 12 but then fell again to around US$92, representing a day rise of some 6 per cent as analysts predicted elevated prices for the foreseeable future.

Citing the “geopolitical alarm” in the region, Mr Stephen Innes, a managing partner at SPI Asset Management, said that “in brokerage jargon, the IEA’s decision (to release emergency supplies) is equivalent to using a garden hose to put out a refinery fire”.

The IEA concluded that, even if the conflict intensity recedes to the extent oil flows can resume, “it will take several days to weeks” for the backlog of tankers on both sides of the Strait of Hormuz to clear.

The widening conflict in the Middle East is expected to dominate discussions at the ASEAN economic ministers’ retreat on March 13, with the grouping’s foreign ministers also holding a virtual meeting on the same day.

The Philippines, the 2026 ASEAN chair, is hosting the meetings, as officials weigh impacts and responses to surging oil prices, as well as disruptions to shipping, logistics and trade flows across South-east Asia’s export-reliant economies.

“The concern is a given,” Philippine Trade Undersecretary Allan Gepty told reporters.

“It is important that our actions and responses to the ongoing conflict must be synchronised,” he added.

‘They’re making a mistake’

Mr Trump, whose Republican Party is trying to hold on to Congress in an election later in 2026, has repeatedly tried to calm energy markets this week by saying the war would soon be over and the surge in oil prices would be short-lived.

But he has not fully explained how the war will end, or presented a plan to reopen the blockaded strait.

US Energy Secretary Chris Wright said on March 12 that it was “quite likely the case” that the US Navy could begin escorting ships through the Strait of Hormuz by the end of March.

“It’ll happen relatively soon, but it can’t happen now. We’re simply not ready,” Mr Wright said in an interview with CNBC.

“All of our military assets right now are focused on destroying” Iran’s military assets and its ability to manufacture them in the future, he said.

US and Israeli officials say the aim is to destroy Iran’s missile and nuclear programmes, but Mr Trump has also demanded Iran’s “unconditional surrender” and the power to determine its leaders.

“You never like to say too early you won. We won,” Mr ​Trump told a campaign-style rally in Hebron, Kentucky, on March 11. “In ​the first hour, it was over.”

The US had “virtually destroyed Iran”, he said. But he added: “We don’t want to leave early, do we? We’ve got to finish the job.”

Mr Pierre Razoux, director of studies at the Mediterranean Foundation for Strategic Studies, said: “If the White House imagines the conflict will stop when Donald Trump decides it, they’re making a mistake and ignoring the lessons of history.”

He predicted: “The Iranian regime, which no longer has anything to lose, will wage a war of attrition against the United States and Israel to punish them for their aggression.” AFP, REUTERS