ISTANBUL

Geopolitical tensions following joint US-Israeli strikes on Iran have triggered sharp rallies in global energy markets as risk premiums surge.

Comments by US President Donald Trump on February 27, indicating dissatisfaction with the progress of nuclear talks with Iran and noting that Tehran had not shown a "good-faith stance" in negotiations, reinforced market concerns about escalating conflict risks.

Oil prices rose sharply the same day as geopolitical tensions intensified. Brent crude settled up 2.8% at around $73 a barrel, the highest closing level since June 2025. West Texas Intermediate (WTI) crude gained 2.6% to $67.17 per barrel.

Market analysts attributed the rally largely to the rising war risk premium driven by military and political escalation.

Reports of coordinated US-Israeli strikes against Iran emerged after markets closed on February 28, limiting immediate price reactions. The developments also raised concerns about potential disruptions to energy transportation through the Strait of Hormuz, a critical route for global oil shipments, as tanker traffic slowed significantly.

With supply disruption fears mounting, crude oil prices accelerated at the start of the new trading session. As of 11.56 a.m. local time (0856 GMT), Brent crude was trading about 8.5% higher from the previous close at $79.19 per barrel, the highest level since January 2025. At the same time, WTI crude rose 8.1% to $72.60 per barrel.

Market participants expect further upside pressure, with Asian market openings potentially pushing crude prices more than $10 higher.

Natural gas markets also reacted strongly to the escalation. European gas prices jumped more than 20% at the start of the week.

On the European benchmark TTF hub in the Netherlands, April futures traded at €40.81 per megawatt-hour at around 10.30 a.m. local time (0730 GMT). Prices had closed at €31.95 on February 27, reaching their highest level in about one year amid the regional security crisis.

Iran's oil production plays key role within OPEC

Given Iran's central role in global oil and gas supply, both as a major OPEC producer and as the gatekeeper of the strategic Strait of Hormuz, any military escalation in the region carries the risk of severe supply disruptions, sharp price spikes, and heightened volatility across global energy markets.

Iran is among the largest oil producers in OPEC. The country accounts for roughly 4%-4.5% of global crude oil supply, with production estimated at around 3.3 million barrels per day (bpd).

Domestic refining capacity is estimated at about 2.6 million bpd, according to London-based energy consultancy Facts Global Energy.

Data provider Kpler estimates that Iran's fuel exports, including liquefied petroleum gas (LPG), averaged about 820,000 bpd last year.

Strategic chokepoint: Strait of Hormuz

The Strait of Hormuz is one of the world's most critical energy transit routes, through which roughly 20 million barrels of oil and petroleum products are shipped daily.

About one-third of globally traded seaborne crude oil passes through the waterway, which is vital for exports from Middle Eastern producers including Saudi Arabia and UAE.

The strait also carries an estimated 20% of global natural gas trade.

Analysts say a potential decline in Iranian supply could be partially offset by the spare production capacity held by OPEC members, although that buffer has been shrinking in recent years amid policies aimed at increasing output.

Iran's natural gas reserves rank among world's largest

South Pars Gas Field, one of the world's largest natural gas basins, is estimated to hold about one-third of global gas reserves.

The offshore field, shared between Iran and Qatar, is known as the North Dome on the Qatari side.

Most of the gas produced at the Iranian portion of South Pars is consumed domestically due to sanctions and technical constraints.

According to the Gas Exporting Countries Forum, Iran's natural gas production was about 276 billion cubic meters in 2024, with roughly 94% consumed domestically.

Iran's South Pars field is estimated to contain about 500 trillion cubic feet of natural gas, of which around 360 trillion cubic feet is considered technically and economically recoverable.