Oil Price Surge Pushes Markets Lower

Oil prices surged after U.S. and Israeli strikes on Iran on Feb. 28, 2026, disrupted flows through the Strait of Hormuz. The disruption lifted inflation expectations and bond yields, contributing to a decline in major U.S. stock indexes on March 6.

Strait of Hormuz Disruption and Risk Premium

The Strait of Hormuz, a vital corridor for about 20% of global oil and 19% of liquefied natural gas (LNG) supplies, has become the epicenter of the shock. Roughly 20 million barrels of crude oil normally transit the waterway daily. Institutional estimates show about 4.2 million barrels can be rerouted through spare pipelines, leaving around 16 million barrels vulnerable if the strait closes fully.

Goldman Sachs Research said markets were embedding an additional $14-per-barrel risk premium as of March 3 to compensate for heightened geopolitical and transit risks. The firm modeled a full one-month closure of the strait, estimating it would add about $15 per barrel with no offsets, $12 with full use of spare pipeline capacity, and $10 if pipeline rerouting was combined with coordinated strategic reserve releases. Goldman cautioned prices could rise further if markets assign a larger premium for prolonged disruption.

Iran’s 2025 production included about 3.5 million barrels per day of crude and 0.8 million barrels of condensate, with exports averaging 1.7 million barrels per day of crude and condensates, 0.6 million barrels of refined products, and 0.4 million barrels of natural-gas liquids.

Market and Consumer Impact

U.S. benchmark crude traded above $90 per barrel amid reports of near-total blockage of the strait, reflecting about a 25% price increase since the conflict escalated. Brent crude rose as much as 13% on March 2, briefly topping $82 per barrel as Gulf exports were disrupted.

Major U.S. equity indexes, including the Dow Jones Industrial Average, fell sharply amid the oil spike, rising sovereign bond yields, and concerns about upcoming inflation and labor-market data. The U.S. national average gasoline price rose to $3.32 per gallon during the initial week of the conflict. Fertilizer and jet-fuel prices also spiked, signaling potential broader pass-through to consumer prices and input costs.

The rise in energy costs is feeding through to inflation expectations and government-bond yields, complicating the outlook for growth and monetary policy. Central-bank responses and the conflict’s duration remain key variables to watch.

"Our strategists estimate that traders demand about $14 more for a barrel of oil than they did before the conflict to compensate for the increase in risks," Goldman Sachs Research said.