Red Sea tensions could push Brent to new cycle high in April, says analyst

Energy Markets Under Siege: Geopolitics, supply shocks, and the inflationary fallout

 

Global energy markets are entering one of the most volatile phases in decades as the Middle East conflict moves into its fourth week with little sign of de-escalation. US–Israel military coordination appears to be intensifying, with reports indicating preparations for a decisive escalation in April, including the possible deployment of an additional 10,000 US troops to the region. Crude prices surged this week following reports that the Pentagon is developing military options for a potential “final blow” against Iran, including the use of ground forces and sustained aerial campaigns.

 

 

Markets are increasingly sensitive to the diplomatic timeline. Should negotiations fail and the Strait of Hormuz remain restricted beyond Washington’s stated deadline, the probability of direct US military escalation rises materially. President Donald Trump underscored this risk with clear warnings to Tehran, reinforcing the perception that the current phase of restraint may be nearing its end. This rhetoric alone has been sufficient to re-price geopolitical risk across oil markets.   

The GCC and a widening regional rift

The conflict is no longer confined to bilateral confrontation. Tensions between Iran and its regional neighbors are deepening, placing the Gulf Cooperation Council (GCC) squarely in the economic crosshairs. Saudi Arabia has granted US forces access to King Fahd Air Base, while the UAE has shuttered Iranian-owned institutions, signaling a broader alignment shift. Iran’s retaliatory strikes across multiple neighboring states have further intensified regional instability. 

 

The GCC has emerged as one of the principal economic casualties of the conflict. Iranian missile and drone attacks have damaged energy infrastructure across Qatar, Saudi Arabia, the UAE, Kuwait, and Bahrain, with more than 40 assets reportedly affected. More critically, Iran’s effective mining and disruption of the Strait of Hormuz—through which roughly 20 per cent of global oil and LNG flows—has brought commercial tanker traffic close to a standstill, turning a geopolitical threat into a physical supply shock.

Supply constraints and structural tightening

With Hormuz largely impaired, Gulf exporters are increasingly reliant on alternative routes, including Saudi Arabia’s East–West pipeline to Yanbu and the UAE’s Fujairah pipeline. These bypass channels, however, can absorb only a fraction of normal export volumes. As a result, unplanned outages are mounting. Qatar has already lost an estimated 17 per cent of LNG output, while refineries and gas-processing facilities across Saudi Arabia, the UAE, and Kuwait remain curtailed or offline.

Macroeconomic transmission and inflation risks 

The energy shock is rapidly feeding through to the macroeconomic landscape. Energy-driven inflation has reasserted itself as a dominant global risk just as central banks were beginning to consider policy easing. US Treasury yields, with the 10-year hovering near 4.4 per cent, now reflect persistent inflation concerns rather than improved growth prospects.

 

The conflict has also compounded disruptions originating from the Russia–Ukraine war, particularly in refined products and fertilisers. 

 

Russia and Gulf producers represent a substantial share of global nitrogen and urea supply, and fertiliser prices have surged by 30–50 per cent, raising the risk of lower crop yields and renewed food inflation in 2026–27. The combined pressure from higher energy and food costs materially reduces the scope for near-term interest-rate cuts by major central banks.

 

The first week of April will be pivotal. A broader escalation—including the potential closure of the Red Sea chokepoint by Yemen’s Houthis—would likely push both Brent and WTI to new cycle highs. The recent 10-day pause in strikes should be viewed as a tactical de-escalation, not a durable resolution. The Strait of Hormuz remains effectively closed, GCC production is still 8–10 mb/d below pre-war levels, and the US military posture remains overtly offensive. The central case continues to be a prolonged conflict with only partial reopening of Hormuz, anchoring oil prices sustainably above $90 per barrel.

  ======================== 

(Disclaimer: This article is by Mohammed Imran, research analyst, Mirae Asset Sharekhan. Views expressed are his own.)