By James Mackintosh

The International Energy Agency calls it " the largest supply disruption in the history of the global oil market." The Israeli-U.S. attack on Iran has led to the near-complete closure and partial mining of the Strait of Hormuz, the world's busiest oil-tanker route. Tankers are burning after being hit by drones. Countries reliant on Middle East oil are already intervening to cap prices.

Yet, the oil price remains only around $100 a barrel, compared with an inflation-adjusted Brent crude price that hit $179 after the Iranian revolution in 1979, $155 when Iraq invaded Iran in 1980, $180 amid the Arab Spring of 2011 and $130 after Russia invaded Ukraine in 2022.

Why is the price still so low? And, closely related, why are U.S. stocks still so little affected? The S&P 500 was down less than 3% from its prewar close, even after selling resumed on Thursday morning.

Oil's price has three main explanations.

First, it started low, because there's a lot of oil around. Oil in storage was the highest in five years before what we can call Gulf War III began, and the price was just $72, below the inflation-adjusted average since 1970.

While the price remains low compared with some past spikes, it is up a huge amount. The rise of more than a third in the first nine trading days of war is far ahead of the same period during the Arab Spring, comparable to the 2022 Russia invasion and not far behind the 44% of the first Gulf War in 1990 or the 38% rise amid the Iran revolution.

Second, markets have been slow to accept that disruption will last. Investors initially thought this was likely to be over in a couple of weeks. When concern set in over the weekend that it might last longer, President Trump's suggestion on Monday that the war was "very complete, pretty much" reassured traders.

Oil's brief jump overnight on Sunday to $128 was fully reversed after Trump's comments. Stocks bounced. On betting site Polymarket, the odds of the war being over by the end of this month jumped from 20% to 43%.

As of Thursday morning, the chance of such a quick end was back down to 22%. Polymarket has only a tiny sample of traders, but Wall Street is starting to factor in the risk of a longer war, too. Goldman Sachs analysts raised their prediction for Hormuz disruption from 10 days to 21 days, and since it takes weeks to get production and transport back to normal, the knock-on effects last much longer.

Still, oil for delivery in December is up less than half as much as for immediate delivery. Investors continue to expect this to last weeks, not months -- let alone years. Stocks are, after all, for the long term: If the oil disruption is temporary, it shouldn't matter too much to the long-run prospects of stocks.

Third, the IEA and its members are releasing 400 million barrels of reserves. Assuming the loss of about 15 million of the 20 million or so barrels a day that went through Hormuz (some is taken by Saudi Arabia's pipeline), and some higher production elsewhere, that's less than a month of supply, but it dampens price rises.

Some stock markets have suffered badly, but not Wall Street. Main Street might be nervously eyeing soaring prices at the pump, but investors are reassured that the economy's fine and the U.S. is insulated by being the world's biggest oil exporter. Inflation might be a little higher, but so long as this is a short war -- the same assumption as the oil market -- this is a little local difficulty, not a major threat to U.S. growth or profits.

The widespread assumption of a short war rests on history, Trump's past willingness to back down when times get tough, the U.S. elections later this year and a guess that Iran won't be willing to keep taking so much damage from the air.

Logic and game theory may not be enough, though. It's easy for Trump to declare victory given the conflicting goals the administration has laid out for the war. But it takes two to end a war. Israel killed the new Iranian leader's father, wife and son in an airstrike, according to Iranian state media.

Will he follow the adage that revenge is a dish best served cold, and prefer to make peace, consolidate power and rebuild his military to fight another day? Or will he fight on, hoping the U.S., Israel and Gulf allies run out of munitions?

Yemen shows that factions in a crippled country can keep lobbing missiles and drones at enemies and passing ships, and even after the Israeli-U.S. bombing, Iran is in a far better state than Yemen. It is fairly easy for Iran to mine the narrow Strait of Hormuz, and it's hard to clear mines under fire.

There's no way to be sure how this will go. Markets were far too confident the war would be short, and are slowly adjusting to a slightly longer conflict. It would only take a couple of sinking oil tankers, a downed civilian jet or a direct hit on the critical Saudi oil pipeline to change this assessment again. This isn't a time to be confident about the outcome.

Write to James Mackintosh at james.mackintosh@wsj.com

(END) Dow Jones Newswires

March 12, 2026 12:11 ET (16:11 GMT)

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