Oil Prices Stabilize After Initial Plunge Amid Iran Conflict Uncertainty
Oil prices edged higher in after-hours trading Monday, partially recovering from a nearly 11% drop during the regular session, as traders assessed the evolving situation in the Iran conflict and its potential impact on global supply. While an immediate escalation appears to have been averted, significant uncertainty remains regarding the extent and duration of potential disruptions to oil flows through the critical Strait of Hormuz.
Chevron CEO Warns Market Underestimates Hormuz Disruption
Chevron CEO Mike Wirth cautioned on Monday that the oil futures market has not fully priced in the potential scale of disruption stemming from the closure of the Strait of Hormuz. Speaking at the CERAWeek by S&P Global conference in Houston, Wirth stated that the market is operating with “scant information” and based on “perception” rather than a clear understanding of the physical realities on the ground. CNBC reported on his comments.
Wirth emphasized that restarting production curtailed in anticipation of conflict and repairing any damaged facilities will take time, suggesting that the impact on supply could be prolonged. He noted a tangible difference in the current situation compared to previous incidents, with a significant amount of oil and gas currently unavailable to the market.
Initial Market Reaction and Price Fluctuations
Oil prices experienced a sharp decline on Monday following President Donald Trump’s announcement of a willingness to negotiate with Iran and a postponement of planned strikes on Iranian power plants. The U.S. Crude oil contract for May delivery closed at $88.13 per barrel, while Brent crude, the international benchmark, settled at $99.94 per barrel. However, the August delivery contract for U.S. Crude is trading around $81 per barrel, indicating a market expectation that disruptions will ease in the coming months.
Goldman Sachs Analysis: Risk Premium and Potential Price Increases
Analysts at Goldman Sachs estimate that traders are currently demanding approximately $14 more per barrel of oil to compensate for the increased risks associated with the conflict, as of March 3, 2026. Goldman Sachs Research suggests this risk premium roughly corresponds to a four-week halt in flows through the Strait of Hormuz, with some offset from spare pipeline capacity.
The impact on prices could decrease to a $4 per barrel increase if only half of the flows are halted for one month. However, Goldman Sachs warns that oil prices could rise substantially higher if the market demands a premium for more persistent supply disruptions. As of March 3, Brent oil closed at $77 per barrel, up from $72 on Friday and $61 at the finish of last year.
Strait of Hormuz: A Critical Chokepoint
The Strait of Hormuz is a strategically vital waterway through which approximately one-fifth of the world’s oil and liquefied natural gas (LNG) supply normally flows. Al Jazeera reports that disruptions to transit through the Strait could leave consumers and businesses facing weeks or months of higher fuel prices, even if the conflict resolves quickly.
Potential for Prolonged High Prices
Even if the conflict ends soon, factors such as damage to oil infrastructure and efforts to replenish strategic oil reserves could contribute to sustained high prices. Investopedia highlights that these elements could keep prices elevated for an extended period.
Key Takeaways
- The oil market has not fully accounted for the potential disruption to supply caused by the Iran conflict and the closure of the Strait of Hormuz.
- Chevron CEO Mike Wirth believes the market is underestimating the physical impact of the situation.
- Goldman Sachs estimates a risk premium of $14 per barrel is currently factored into oil prices.
- Disruptions to the Strait of Hormuz, a critical oil transit route, could lead to prolonged higher prices.