Why Brent Crude Near $89 as the Hormuz Crisis Raises the Risk of $120 Oil

The latest oil rally is primarily a geopolitical risk premium: traders are pricing the possibility that a temporary disruption around the Strait of Hormuz becomes a prolonged physical supply shock. Brent approached $89 a barrel, while Brent and WTI both gained more than 5% over the previous week after tanker attacks, stalled U.S.–Iran diplomacy and renewed military threats clouded the outlook.

Why the Strait of Hormuz matters

Hormuz is one of the world’s most important energy chokepoints, carrying roughly one-fifth of global oil supplies under normal conditions. The Congressional Research Service described a “precipitous drop” in cross-Strait traffic and disruption to global energy markets.

Reuters reported that only six vessels passed through the strait, compared with an average of about 11 vessels over the preceding 10 days. Other tracking showed five commodity vessels transited on a Saturday and none were registered the following day.

That matters even before production is permanently lost. Fewer ships mean longer delivery times, higher war-risk insurance and freight costs, more expensive rerouting and greater uncertainty over when crude can reach refiners. The United States has also warned that its naval blockade of Iran could continue indefinitely, while attacks on commercial vessels have added to the pressure on shipping.

The disruption extends beyond Hormuz

The energy risk is not confined to the Persian Gulf. Separate attacks reported in the Gulf of Oman and at the entrance to the Red Sea affected two major routes for global oil and commercial shipping; U.S. and Yemen’s Iran-aligned Houthis reported separate attacks on shipping as negotiations stalled.

The result is a broader logistics shock. Even cargoes that can still move may face higher insurance, more cautious routing and delays. That helps explain why oil prices have risen faster than confirmed evidence of a total loss of Gulf production: markets are paying for the possibility of a much larger disruption.

Why diplomacy has failed to calm the market

The June interim arrangement was intended to create space for negotiations, but the two sides have not agreed on how to revive it or implement its commitments. Reuters reported that there had been no talks on extending the 60-day ceasefire, while Iran demanded that Washington return to the June framework and set a timetable for its obligations.

The ceasefire subsequently expired without a formal follow-on agreement, according to reporting on August 18. Iran has also said that it is negotiating with Oman—not directly with the United States—over a temporary shipping arrangement through Hormuz.

Those efforts remain indirect and fragile. Iran and Oman had described discussions over alternative or new shipping lanes as nearing completion, but the arrangement was not implemented while the larger dispute over sanctions, military pressure, compensation and the future status of the strait continued.

Claims about a direct U.S.–IRGC back channel should therefore be treated cautiously. Public reporting includes competing assertions, and the IRGC has denied that such talks are taking place. The available evidence supports describing the diplomacy as mediated and contested, not as a confirmed direct negotiation.

Who benefits—and who loses—from higher oil prices?

Higher crude prices can rapidly improve cash flow for companies with substantial upstream production. The Kobeissi Letter estimated that ExxonMobil, Chevron, Shell, TotalEnergies and BP generated almost $70 billion in combined free cash flow in the second quarter of 2026. That is a market estimate, not a replacement for each company’s audited financial statements, but it illustrates how a price spike can benefit major producers.

Consumers, transport companies and energy-intensive businesses face the opposite effect. More expensive crude raises fuel and freight costs, while prolonged shipping disruption can add insurance and delivery expenses. If those costs persist, the main macroeconomic risk is renewed energy-driven inflation, which could make central banks more cautious about cutting interest rates and weaken consumer demand. Lower 2026 oil-demand forecasts have so far limited the price rise.

The U.S. emergency buffer is also thinner than it was before the crisis. The Strategic Petroleum Reserve fell by 6.1 million barrels to 298.7 million barrels in the week reported on August 10, its lowest level since January 1983.

That does not mean the United States is about to run out of oil. It does mean policymakers have less inventory available to offset a prolonged disruption, and the market may attach greater value to every additional supply interruption.

Why analysts describe the conflict as a “forever war”

The phrase reflects the structure of the standoff rather than a precise forecast. The United States and Iran remain far apart on the conditions for a permanent settlement, while both retain tools for sustained pressure: blockades, attacks on shipping, sanctions, proxy activity and retaliation.

That combination can produce repeated temporary arrangements followed by breakdowns, rather than a clean diplomatic end. Each side can impose costs without immediately choosing the kind of decisive escalation that would force a final settlement. For oil traders, that means the risk premium may return whenever talks stall or shipping is attacked—even if open conflict does not dramatically widen.

What markets are signaling

The cross-asset response has been uneven rather than a uniform global sell-off. Gold reached a nine-week high as oil rallied, European share futures weakened, and Asian equities were mixed to firmer.

This pattern suggests that investors are separating the immediate beneficiaries of higher energy prices from the sectors exposed to inflation and weaker demand. The key question is whether the crisis remains a short-lived shipping interruption or becomes a sustained interruption to crude supply.

Could Brent reach $120?

Yes—but the evidence supports treating $120 as an upside-risk scenario, not an imminent base case. Goldman Sachs analysts said Brent could exceed $120 if Hormuz disruptions continued, while their cited base case was materially lower.

A move to $120 would likely require several conditions to persist at once:

• a durable or near-total shutdown of Hormuz;
• a wider loss of Gulf exports or energy infrastructure;
• limited effectiveness from alternative pipelines and other shipping routes;
• insufficient inventories, spare capacity or coordinated stock releases; and
• demand failing to weaken enough to rebalance the market.

For now, the market is reacting to the risk of that chain of events, not proof that every condition has occurred. The clearest indicators to watch are vessel transits through Hormuz, attacks on tankers and Red Sea shipping, the state of the ceasefire talks, and whether crude inventories begin to provide a meaningful offset. If those signals deteriorate together, the probability of a sharper oil spike will rise.