How the Middle East war and Trump’s Israel-Iran ‘ceasefire’ caused crude oil chaos

In a world used to chaos at the pump whenever missiles fly in the Middle East, the current conflict offered a plot twist worthy of a geopolitical thriller: war broke out, oil prices first soared and then crude prices crashed. By Lindsey Schutters.

The conflict escalated rapidly, with Israel launching “Operation Rising Lion” to strike Iranian nuclear sites. Iran retaliated with missile barrages. Then the US joined the fray, bombing major Iranian facilities and setting the world on edge. Traders panicked. Prices surged. Brent crude spiked to over $80 a barrel. The fear? That Iran might block the Strait of Hormuz, choking off a fifth of global petroleum.

But behind the scenes, a different drama was unfolding. According to satellite imagery and backchannel chatter, the US quietly evacuated its airbase in Qatar before Iran launched a retaliatory missile attack – one that conveniently caused zero casualties and was telegraphed 12 hours ahead of time. The conflict’s crescendo, it turns out, was more theatre than war.

And just like that, the markets yawned and went about their business.

When fear vanishes, fundamentals return

Without the risk of a Hormuz shutdown, traders refocused on the oil market’s unsexy reality: 

• Opec+ has spare capacity, up to 4 million barrels per day sitting on standby;
• US shale is booming and approaching 21 million barrels daily in total liquids production;
• Inventories are rising and the US saw a surprise 4.2 million barrel build mid-conflict; and
• Demand is limp because China’s refinery output is down, and global indicators point to economic slowdown.

The net effect? Once the speculative fear bubble burst, there was nothing holding prices up.

In fact, Brent and WTI both settled below their pre-conflict levels. The market not only priced out the risk, it remembered how oversupplied and under-demanded the landscape really is.

Fragile ceasefire, fragile peace

Despite the ceasefire, Iran and Israel couldn’t even agree whether it was a ceasefire. Within hours, more missiles flew. Israel blamed Iran. Iran denied. The truth didn’t matter; the damage to credibility was done.

Still, markets didn’t panic. They’d seen this movie before. Short-term volatility, yes. Full-scale war? Not yet.

As one trader told Bloomberg: “We’ve had 25 Strait of Hormuz scares in the last decade. None of them closed the tap.”

What this means for you: If you’re a South African motorist anxiously watching global headlines, here’s the deal: The price of crude oil is just one factor in our monthly fuel price adjustments. Right now, the drop in international oil prices could ease pressure on future fuel hikes. However, the rand is the wild card. If the rand strengthens and oil stays subdued, we might see a fuel decrease in the next pricing window. But if the rand weakens – or if the war in the Middle East flares up – those savings could be wiped out.

Lessons from the paradox

The oil market’s response to the war in the Middle East teaches us that modern trading is less about what happens and more about what is believed to be possible. The threat of catastrophe inflates prices. If there’s no escalation, we return to normal.

So, when war broke out in the world’s most volatile oil region, and oil fell, it wasn’t madness. It was math.

The real madness may be what happens next. DM