Oil prices have surged past the $100 per barrel mark for the first time since late July, as escalating military confrontations between the US and Iran in the Strait of Hormuz reignite fears of supply disruptions from the Middle East. Brent crude broke through the psychological barrier during intraday trading on Monday, with market focus firmly shifting back to geopolitical risk premiums.

Brent crude was up as much as 2.3% in afternoon trading, touching $100 per barrel, before paring gains to trade around $99.70, up 1.82% on the day. The surge underscores how fragile global supply chains remain amid renewed hostilities in the region.

According to reports from Chinese state media, Iran's Islamic Revolutionary Guard Corps (IRGC) issued a statement on Monday claiming it had struck two US warships and eight tankers in the Persian Gulf in retaliation for American attacks on Iranian oil vessels. The IRGC also said it had targeted ten other vessels for alleged violations. Meanwhile, US Central Command reported on Sunday that American forces had destroyed five Iranian crude carriers the previous day.

The escalation comes as global banks warn of prolonged market tightness. In a research note released over the weekend, HSBC analysts argued that supply disruptions through the Strait of Hormuz may have evolved from a temporary shock into a "new normal" condition, keeping the oil market in a structurally tighter balance for longer. The bank raised its 2026 average Brent forecast sharply from $80 to $90 per barrel, and lifted its 2027 projection from $65 to $85 per barrel.

Goldman Sachs has also cautioned that if shipping disruptions continue to deteriorate, Brent prices could rally further toward $120 per barrel. Adding to the bullish backdrop, global crude inventories continue to decline, providing fundamental support for elevated price levels.

US and Iran Trade Blows as Conflict Intensity Rises

The latest round of escalation follows a clear pattern of "tit-for-tat" retaliation. US Central Command confirmed on Sunday that American forces destroyed five Iranian crude oil transport vessels. Just two days earlier, Iran's IRGC had twice launched ballistic missiles at a US Navy warship, although the vessel successfully evaded the strikes and sustained no damage or casualties, according to the American military.

Iranian sources reported late Sunday that an Iranian oil tanker was struck by US missiles approximately four miles from Kharg Island, the country's main export terminal. Local sources indicated there were no casualties and that crew members were being evacuated from the vessel. Investigations into the precise details of the incident are reportedly ongoing.

Hormuz 'New Normal': Channel Damage Now a Structural Problem

HSBC's report highlights that since the fragile ceasefire collapsed in July, liquid flows through the Strait of Hormuz have stabilized at roughly 30% of pre-conflict levels, though intraday volatility remains extreme. Current flows are estimated at around 6 million barrels per day, a dramatic decline from the 19-20 million barrels per day that transited the strait before the conflict began.

The bank defines the current situation as "disruption" rather than a full "blockade" — the strait is neither completely closed nor fully operational, remaining in a state of sustained impairment. In its base case scenario, HSBC expects the US and Iran to eventually reach a fragile understanding, but anticipates that any agreement will repeatedly break down, keeping security conditions volatile. Consequently, the bank projects Hormuz flows to recover gradually from current levels to around 8 million barrels per day by year-end and 9.5 million by mid-2027 — still significantly below pre-conflict output.

Pipeline bypass routes are expected to become an increasingly important source of supply relief. HSBC estimates that existing and under-construction pipelines, including Saudi Arabia's East-West line and the UAE's ADCOP system, could lift bypass flows from over 4 million barrels per day currently to 6.8 million by mid-2027. This would bring total Gulf export capacity to approximately 16.5 million barrels per day. However, this still falls short of fully compensating for lost strait volumes, and the bank expects the market will not rebalance until mid-2027, implying continued inventory draws for several more quarters.

Three Scenarios Point to a Broad Price Range of $70 to $120

HSBC has modeled three distinct scenarios around Hormuz flow trajectories, each with significantly different oil price paths. In its base case, Brent is expected to hold in the mid-$90s for the remainder of this year before easing gradually through 2027 as the market moves toward balance. The bank sees an average of $95 per barrel in Q4 2026, moderating to $85 for full-year 2027 and falling to $75 by 2028.

In its stalemate scenario — where diplomatic negotiations continue to fail and Hormuz flows remain at current lows — global inventories would approach minimum operating levels, potentially driving Brent into a $110-120 range. Prices would only retreat once demand destruction and non-OPEC supply growth force a market rebalance in the third quarter of 2027.

The bank's recovery scenario sees a durable ceasefire by Q4 2026, a significant restoration of Gulf exports, and a return to market balance before year-end. This would create a surplus of over 3 million barrels per day by 2027, dragging Brent back to the $70s range.

Product Markets Even Tighter as Refining Margins Hit Record Highs

HSBC's analysis finds that refined product markets are even more strained than crude, with tightness expected to persist into 2027. European diesel cracks surged through $90 per barrel on April 1 — an all-time high — partly driven by Russia's extension of its ban on diesel, gasoline and jet fuel exports until January 31, 2027. Gasoline cracks have also approached $90 per barrel, while jet fuel margins have broken through that level, running roughly in line with diesel.

Soaring transportation and insurance costs are another major factor behind elevated refining margins. Citing estimates from TotalEnergies' chief executive, the bank notes that the cost of transiting Hormuz in "dark mode" — with transponders switched off — amounts to roughly $10 per barrel. Additional shipping costs from the Gulf to Asia add a further $6-9 per barrel, bringing total transportation costs to between $16 and $19 per barrel — approximately ten times pre-conflict levels.

On the Russian supply side, data from Kpler for July indicates that about 60% of Russian refining capacity has been damaged or impacted by drone strikes, with offline capacity estimated at 1.5-2 million barrels per day. Russian seaborne diesel and gasoil exports for August were just 150,000 barrels per day — down 610,000 barrels per day year-on-year and 81% below the five-year seasonal average.

HSBC has substantially raised its refining margin assumptions for 2026-2028, now projecting Northwest European integrated refining margins to average $31.7 per barrel in 2026 — well above its previous forecast of $20.9. The bank expects product market tightness to persist until 2027, when Gulf refineries are expected to gradually resume normal operations and ease the strain.