Brent crude surges to four-year high amid threats of US-Iran ceasefire collapse
Last week, Brent crude prices briefly touched $126 per barrel, the highest level since 2022, amid reports of possible US strikes on Iran and a blockade of the Strait of Hormuz, before retreating to $108.
The brief spike in Brent crude to $126 per barrel followed by a pullback to $108 is not just headline-driven volatility. It is a moment of truth that has exposed the deepest illiquidity in the physical oil market and the collapse of traditional pricing mechanisms. What we witnessed was a technical panic of algorithms, but the consequences of this spike will shape central bank policies and geopolitical alliances for the rest of the year.
The essence: what is really happening
The essence of what happened lies in a fundamental disconnect between the paper futures market (which pulled back) and the physical market for real barrels (which remains at anomalously high levels). When Brent briefly touched $126, it was not speculative hysteria from retail traders on Robinhood. It was the moment when physical traders from Vitol, Trafigura, and Mercuria simultaneously tried to hedge urgent purchases of real crude cargoes for June delivery, only to find an empty order book. Liquidity on the far end of the futures curve was destroyed by the withdrawal of systematic market makers, who shut down algorithms because they could not calculate geopolitical risk.
The pullback to $108 is an illusion of normalization. In reality, the premium for immediate delivery (spot) relative to forward contracts (backwardation structure) has skyrocketed. The physical differential for Murban crude (a key UAE grade loaded right in the risk zone) hit a record premium of $8.50 to Dubai swaps. This means Asian refineries are forced to pay huge sums for the ability to get oil right now, fearing that in a week it may not be physically available at any price. The market is saying: "Theoretically, Brent is $108, but try buying a real tanker in Fujairah." That gap is where the real story lies.
Timeline and context
The timeline of this spike is critical to understanding the panic. The surge to $126 did not occur during the main London trading session but in the thin Asian market during a period of low liquidity (around 03:00 Singapore time), when news broke that Trump had rejected an Iranian peace proposal. At that moment, stop-losses and call options with a $120 barrier, written back in March when such a scenario seemed fantastical, were triggered.
Behind the scenes, the options market collapsed. Delta hedging by market makers (banks like Goldman Sachs and Morgan Stanley), who had sold these options, required them to buy futures in geometric progression, creating a "rocket" effect. A senior trader at a leading commodity hedge fund, who wished to remain anonymous, described it as a "gamma squeeze" similar to what happened with GameStop shares in 2021 or the nickel market in 2022. After the main option sellers plugged the holes in their balance sheets and the Pentagon signaled that "the ceasefire formally holds," the market pulled back. But the scar remains: monthly implied volatility (IV) on Brent options jumped from 55% to 82%, a level seen during the full-scale Gulf War of 1990-91.
Who wins and who loses
The biggest loser is the global consumer of gasoline and diesel, but not in the US—rather in Asian countries that subsidize fuel. India, Indonesia, and Japan face a nightmare: their state-owned oil companies (IOC, Pertamina) are forced to lock in purchases on the physical market, which remains overheated even after the Brent pullback. Indonesia's subsidy budget, calculated based on oil at $80 per barrel, has burst at the seams; to save it, Jakarta will have to sharply raise domestic prices, fueling social inflation. Japan, lacking its own resources, faces a record LNG import bill, as long-term liquefied gas contracts are linked to a basket of oil prices with a 3-4 month lag.
An unexpected beneficiary is the US shale sector, but not all of it—specifically producers in the Permian Basin. At a Brent price of $108, even with the WTI discount to Brent of $8, the internal selling price for producers in Texas and New Mexico is around $70-72. This is above breakeven, but not enough to trigger a new wave of frantic drilling. Those who have already drilled but not completed wells (so-called DUCs—drilled but uncompleted) win. Bringing them online costs a paltry $25-30 per barrel, yielding operators like Pioneer Natural Resources (acquired by ExxonMobil) a 200% margin. They earn super-profits without increasing supply, which only worsens the global deficit but keeps ExxonMobil and Chevron stocks from falling amid the broader market.
What the media isn't saying
The most uncomfortable fact that is not widely reported is the role of sanctions in creating this illiquidity. Iranian shadow tankers (the "ghost fleet"), which carry between 1.2 and 1.5 million barrels per day, have become almost completely immobile. It is not about the physical destruction of vessels, but a digital blockade. Satellite imagery and tracking analytics show that since early May, when the IRGC raised the stakes, the Iranian fleet has been forced to turn off AIS transponders and rely on "blind spots" on routes. But international P&I (Protection and Indemnity) insurance clubs in London and Tokyo have privately tightened rules for checking unknown vessels. If a ship is not properly identified by satellite monitoring systems, it is denied entry to ports in Malaysia, China, and Singapore.
The result is an artificial deficit. Up to 800,000 barrels per day of Iranian and mixed Kurdish crude are literally "stuck at sea," unable to unload, while the Malacca Strait coast guard and the Indian Navy have received tacit orders from the US to stop suspicious tankers under the pretext of environmental inspections. Thus, the spike to $126 is not only fear of a future strike but also an immediate supply shock caused by the clogging of IRGC shadow logistics.
Forecast: the next 30 days and 90 days
30-day horizon (by June 5, 2026).
In official news, Brent will consolidate in the $105-$115 range. However, the physical market will relentlessly creep higher. Asian countries will begin emergency purchases of barrels from strategic reserves, fearing further escalation. OPEC+, whose meeting may be called urgently, will be paralyzed. Saudi Arabia and the UAE hate high prices ($110+), which kill demand and accelerate the green transition, but they cannot increase production because their ports are under drone threat. Spare capacity (about 3 million bpd) has become "illusory" because oil is produced but cannot be shipped.
90-day horizon (by August 2026).
If the shadow ceasefire collapses completely, $126 will become not a ceiling but a floor. In August, during the peak of the US driving season and Asian air-conditioning season, demand will rise by another 1.5-2.0 million bpd. If by then Iran has completely halted shipments through gray traders and the blockade of the Strait of Hormuz remains informal, we will see a sustained price of $135 per barrel. This will immediately push US inflation expectations to 4% and force the Fed to raise rates urgently, creating a classic stagflation trap: oil rises due to war, while the economy contracts due to expensive credit and gasoline at $5.50 per gallon. This will be the end of the "soft landing" era and the beginning of a full-blown crisis triggered by the market finally realizing that physical goods are worth more than paper money when they cannot be delivered.
— Editorial Team
