Oil prices surged 8% overnight, is this just the prelude? The market holds its breath, paying close attention to the security situation in the Strait of Hormuz

As Israeli fighter jets tore through the night sky over Tehran, the nerves of the global energy market instantly tightened.

Israel's airstrikes on Iranian nuclear facilities and military targets triggered severe turbulence in the global crude oil market. On Friday, WTI crude oil surged nearly 8% to $74, with the entire futures curve soaring.

And this may just be the beginning. If the Strait of Hormuz, a vital lifeline for 20% of the world's oil, is threatened, investors will face a real energy crisis.

Geopolitical conflicts ignite supply concerns, oil price risk premium surges sharply

The attack caused the entire crude oil futures curve to rise, with the front-end contracts experiencing the most significant gains, reflecting strong market concerns about short-term supply disruptions.

UBS analyst Dominic Ellis noted in his comments, "Israel's nighttime attack on Iran has shifted the entire oil futures curve upward, with more extreme volatility at the front end, as the market weighs the risks of global crude flow disruptions." Although Iran's production and export infrastructure appears to be undamaged, reports indicate that refineries have suffered some degree of damage.

Ellis further analyzed that "the feeling that this conflict could become protracted, even without actual supply disruptions, could add a geopolitical risk premium of $3-5 per barrel to oil." This assessment highlights the market's deep concerns about an escalation of the situation.

Goldman Sachs analyst Thomas Evans listed the four key focus areas currently on the market's radar in a report to clients: the scale of Iran's response (including proxy activities), statements from U.S. officials and Trump today, the extent of damage to Iranian nuclear facilities, and potential follow-up strikes by Israel.

Evans emphasized, "Energy risks are clearly concentrated in the Strait of Hormuz, as well as the threat to Iran's domestic oil fields (which account for about 3.5% of global production) and refining infrastructure. The Strait of Hormuz carries about 20% of the world's oil and liquefied natural gas flows, and Goldman Sachs' historical research predicts that if this channel is disrupted, oil prices will rise by 25%."

The freight market's reaction has also been intense. According to Bloomberg, citing broker Marex Group, forward freight agreements for transporting crude oil from the Middle East to Asia surged 15% in July, reaching $12.83 per ton.

Can OPEC's spare capacity fill the gap? The Strait of Hormuz becomes a key variable

Despite the geopolitical tensions pushing oil prices higher, analysts also point out that OPEC's idle capacity provides some buffer for the market. However, the effectiveness of this "safety valve" may be severely constrained by threats to maritime transport routes.

Ellis noted in his analysis, "OPEC has 5 million barrels per day of idle capacity, of which 1 million barrels per day of incremental supply would naturally return to the market with planned production cuts being eased. However, the conflict could escalate in some way, thereby limiting the potential role of some of OPEC's idle capacity." The core of this concern lies in the strategic importance of the Strait of Hormuz. This strait is not only a vital route for Iran's oil exports but also a key passage for oil transportation from core OPEC member countries like Saudi Arabia. If Iran or its proxies were to block or attack this strait, even if OPEC has sufficient idle capacity, it would be difficult for this oil to be smoothly delivered to international markets.

Goldman Sachs analyst Daan Struyven provided clients with a more detailed scenario analysis. He warned that "any substantial damage to Iran's oil export infrastructure would significantly reduce supply, potentially triggering a sharp spike in crude oil prices."

In Struyven's baseline scenario, assuming a reduction of 1.75 million barrels per day in Iranian supply over six months before gradually recovering, while also assuming that the additional output from core OPEC+ members compensates for half of the peak shortfall from Iran, Brent crude prices would surge to just above $90 per barrel.

However, Struyven also issued a more severe warning: "In extreme tail risk scenarios, if broader regional oil production or shipping is negatively impacted, oil prices could rise even more sharply."

JP Morgan even warned in a report on Thursday that in the "worst-case scenario," if the Strait of Hormuz is blocked, oil prices could soar to $130 per barrel, which would push the U.S. CPI back above 5%. Following the Israeli attack on Iran, JP Morgan has raised the probability of this "worst-case scenario" from 7% on Thursday to 17%.

Another key issue is whether Iran or its proxies would target Saudi Arabia's Abqaiq facility—one of the most important oil processing centers in the world. The attack on this facility in 2019 briefly disrupted over 5% of global oil supply, providing a realistic basis for current market concerns.

As geopolitical risks re-emerge as a dominant factor in the oil market, investors are forced to reassess the vulnerability of energy security and the global economy's deep reliance on the Middle Eastern oil supply chain