Oil at $103 as US strikes Iran sites, markets watch Fed
Brent surges 50% since war began; IEA calls disruption worst in oil market history as Fed policy uncertainty looms
Brent crude climbed to $103 per barrel and US crude approached $95 on Wednesday as the United States conducted strikes on Iranian missile sites near the Strait of Hormuz, escalating a 19-day conflict that has disrupted global energy supplies and reignited inflation concerns.
The US Central Command deployed 5,000-pound bunker-busting munitions to target Iranian anti-ship cruise missiles that threatened international shipping, according to reports. The latest military action represents another escalation in the conflict that began on February 28 and has already driven Brent crude up approximately 50% since the war's outset.
The International Energy Agency has described the situation as the largest supply disruption in global oil market history, with the Strait of Hormuz—a chokepoint that handles roughly 20% of the world's oil supplies or about 20 million barrels per day—facing severe restrictions. Commercial shipping through the waterway remains limited, with analytics indicating Iran is selectively allowing transits for allied nations like China and India while Western-linked vessels continue to avoid the area.
The energy price shock is complicating the Federal Reserve's monetary policy calculations as policymakers gather for their March 17-18 meeting. The central bank is widely expected to maintain interest rates at 3.5% to 3.75%, according to market analysts, but persistent inflation pressures from elevated energy costs could reshape the outlook for rate cuts later this year.
"So much for 2% inflation this year," noted analysts at Forex.com, highlighting how the oil surge has undermined disinflation progress. Core CPI was running at 3.1% year-over-year in January, and headline inflation registered 2.4% in February before the latest energy price acceleration.
Financial markets have reflected the growing uncertainty. The S&P 500 has declined 4.2% since the conflict began, while the CBOE Volatility Index has exceeded 29 and remains near 25, signaling elevated investor anxiety. The CNN Business Fear & Greed Index sits in the "Extreme Fear" zone at 21.5.
Some relief arrived with Iraq's announcement that it will resume oil exports through the Turkish port of Ceyhan following maintenance on the Kirkuk–Ceyhan pipeline. The additional supply could help moderate price gains, but analysts caution that the geopolitical risk premium remains substantial.
The IEA earlier coordinated its largest-ever release of strategic petroleum reserves, totaling 400 million barrels, yet the intervention has proven insufficient to offset the virtual halt of oil flow through the Strait of Hormuz. Some analysts warn that prolonged disruption could push prices significantly higher, potentially reaching $150 to $200 per barrel if the conflict continues.
The conflict has claimed high-profile casualties, including Ali Larijani, secretary of Iran's Supreme National Security Council, who was killed in a strike. Iran also executed Kourosh Keyvani, whom it accused of spying for Israel and providing sensitive information to Mossad.
For investors, the coming days will bring clarity on both the military and economic fronts. The Federal Reserve's updated Summary of Economic Projections, released alongside the interest rate decision, will signal how policymakers intend to balance the competing risks of persistent inflation against potential economic slowdown from energy price pressures. Meanwhile, oil markets will remain focused on whether the partial supply restoration from Iraq can provide meaningful relief or whether further escalation lies ahead.