Oil prices are poised to extend sharp gains as the conflict involving the United States, Israel and Iran enters its third week, raising fears of one of the largest supply shocks in years. Fresh strikes near Iran’s main export hub on Kharg Island and drone attacks on energy facilities in the United Arab Emirates have intensified concerns over security in the Gulf and disruptions to the Strait of Hormuz, a passage that carries about one fifth of global oil supply. Benchmark crude prices have already surged more than 40 percent this month to their highest levels since 2022.

Analysts warn that prices could remain above 100 dollars per barrel as shipping through the strait has largely halted and supply cuts deepen. Estimates suggest that up to 7 million barrels per day of global supply are already offline, with the shortfall potentially widening to nearly 12 million barrels per day. If Kharg Island were disabled for an extended period, as much as half of Iran’s national output could be at risk, removing a critical storage buffer and triggering further production shut ins across the region.

Energy markets are beginning to feel the physical strain, with cargoes dispatched before the closure still arriving but few new shipments departing. Several Asian and European buyers could exhaust incoming supplies within days. Countries including India, Sri Lanka and Myanmar have taken emergency measures to manage fuel demand, while Iraq has curtailed more than half of its pre conflict production. Analysts caution that in a worst case scenario, Middle East output could fall by as much as 70 percent.

Economists say sustained prices above 100 dollars per barrel would erode consumers’ real incomes and slow economic growth, complicating policy decisions for central banks. Even if the conflict eases, restoring regional energy infrastructure to pre conflict levels could take months, prolonging uncertainty in global markets.