Brent Nears $87 as Renewed US-Iran Hostilities Deepen Global Supply Fears

Crude oil prices extended their rally on Wednesday as renewed hostilities between the United States and Iran disrupted the recovery in Middle East exports and forced traders to rebuild the geopolitical risk premium removed from the market in June.

Brent crude oil, the international benchmark for Nigerian crude oil, rose by $1.71 or 2 percent to $86.44 per barrel at 9:06 a.m. Nigerian time, while West Texas Intermediate crude advanced by $1.43 or 1.8 percent to $80.77 per barrel.

The increase pushed both benchmarks further above the levels recorded at the end of last week. Brent, which settled at $76.01 per barrel on Friday, has gained approximately 13.7 percent in three trading sessions as supply concerns returned to the centre of market pricing.

The latest rally followed the reimposition of a United States naval blockade on Iranian ports and renewed attacks around the Strait of Hormuz, a strategic waterway that handled about one-fifth of global oil flows before the conflict.

Iran has responded by threatening export routes used by the United States and its allies, raising concerns that the disruption could extend beyond Hormuz to the Bab el-Mandeb Strait, another major gateway connecting energy shipments to the Red Sea.

Gulf Export Recovery Reverses

The significance of the latest escalation extends beyond political rhetoric because physical crude movements are already being affected.

Gulf oil exports had recovered to more than 80 percent of their pre-war level following the interim agreement reached in June. However, shipments reportedly declined to below 50 percent or approximately 11 million barrels per day, over the past week.

Iranian crude exports, estimated at between 1.5 million and 2 million barrels per day before the renewed blockade, are also coming under pressure. This means the market is no longer pricing only the possibility of a disruption, it is responding to an observable reduction in available supply.

The deterioration explains why crude prices have risen sharply despite a relatively weak global consumption outlook.

However, the scale and duration of the rally will depend on whether the latest attacks result in sustained reductions in Gulf shipments or another temporary interruption followed by a negotiated reopening.

Underlying Fundamentals Remain Less Bullish

While geopolitical developments support higher prices in the immediate term, the broader fundamentals do not yet point to a prolonged structural shortage.

The International Energy Agency said global oil supply rebounded by 4.1 million barrels per day to 98.8 million barrels per day in June after tanker movements through the Strait of Hormuz partially recovered.

The agency also reported that observed global inventories increased by 21 million barrels in June, the first expansion in four months, as growing volumes of crude held on water offset continued declines in onshore storage.

More importantly, the IEA expects global oil demand to decline by about one million barrels per day in 2026. Although consumption is recovering from its May low, the agency believes the pace of expansion over the next two years will remain below historical levels.

The Organisation of Petroleum Exporting Countries, however, remains more optimistic. OPEC expects global demand to increase by about 780,000 barrels per day in 2026 and accelerate by approximately 1.9 million barrels per day in 2027.

The difference between the two forecasts highlights the uncertainty surrounding the market. OPEC sees continued consumption growth led by developing economies, while the IEA expects the economic consequences of the conflict, elevated energy costs and demand-saving measures to weaken overall fuel use.

Product Market Tightness Adds Another Layer

The crude oil balance also differs from conditions in the refined-product market.

Global refinery operations remain constrained by the slow restart of Middle East export refineries, attacks on Russian infrastructure and reduced processing activity in parts of Asia.

According to the IEA, refinery runs in June were still six million barrels per day below the level recorded a year earlier, pushing product cracks and refining margins to four-year highs in early July.

This suggests that even if sufficient crude becomes available, shortages of petrol, diesel and aviation fuel could remain a source of inflationary pressure.

The market is therefore facing a situation in which crude supply may recover faster than refining capacity and product inventories.

Forecasts Now Depend on Shipping Access

The latest price increase has already moved Brent considerably above some medium-term projections.

The United States Energy Information Administration expects Brent to average $74 per barrel in the third quarter of 2026, based largely on recovering production, moderating inventory withdrawals and the restoration of international trade flows.

That forecast could still materialise if hostilities ease and Gulf exports recover rapidly. But a prolonged blockade would invalidate some of the assumptions supporting the projected decline.

The immediate direction of crude oil will therefore be determined less by headline production capacity and more by whether available barrels can be transported safely to refiners.

Nigeria Gains Revenue Opportunity but Faces Domestic Risks

For Nigeria, the renewed increase in oil prices coincides with an improvement in production.

The country produced an average of 1.56 million barrels per day of crude oil in June, its highest level since April 2020 and approximately 104 percent of its 1.5 million-barrel-per-day OPEC quota. Combined crude oil and condensate production reached 1.735 million barrels per day, marking a fourth consecutive monthly increase.

Higher production and stronger international prices could improve Nigeria’s oil export receipts, government revenue and foreign-exchange inflows if the output recovery is sustained.

However, the benefit will be partly moderated by higher shipping and insurance expenses. OPEC reported that tanker rates on the West Africa-to-East route increased by 10 percent month-on-month in June and remained about 160 percent above the corresponding period of 2025.

Rising crude prices could also create domestic complications. The Dangote refinery has started pricing local petroleum product sales in dollars after struggling to secure sufficient domestic crude under the naira-for-crude arrangement.

A sustained increase in Brent would raise the cost of imported feedstock and potentially expose Nigerian fuel prices to further upward pressure.

Nigeria is consequently positioned on both sides of the current oil shock: it benefits as an exporter of crude but remains vulnerable when domestic refineries must purchase feedstock at international prices and in foreign currency.

Key Market Implications

• Physical shipping disruptions have replaced speculative positioning as the main short-term price driver.
• Brent could remain elevated while Gulf exports operate materially below pre-war capacity.
• Weak demand growth and recovering non-OPEC supply may limit the rally once shipping conditions stabilise.
• Tight refining capacity could keep petrol and diesel prices high even if crude eventually retreats.
• Nigeria’s fiscal benefit will depend on sustaining production and resolving domestic crude-supply constraints.

Balanced Outlook

The present rally reflects a genuine supply risk, but it should not yet be interpreted as the beginning of an unrestricted oil bull market.

If hostilities expand and the Strait of Hormuz remains severely constrained, Brent could move above $90 per barrel as refiners compete for Atlantic Basin, West African and American crude.

A wider disruption involving the Bab el-Mandeb route would increase the probability of another move towards $100.

Conversely, a ceasefire or rapid restoration of Gulf shipments could remove the risk premium just as quickly. Recovering production, rising inventories and modest demand growth would then return Brent towards the $70s.

The oil market is therefore being driven by an unusually fragile balance: the underlying fundamentals favour eventual moderation, but the immediate geopolitical and shipping risks continue to favour higher prices.