On February 27, WTI Crude Oil (April contract) rose by USD 1.81, or 2.78%, to settle at USD 67.02/bbl. Brent Crude Oil (April contract) gained USD 1.73, or 2.45%, closing at USD 72.48/bbl. The rally was primarily driven by escalating geopolitical tensions in the Middle East, with the market pricing in a rising war-risk premium.
Geopolitical escalation intensifies
Following mounting diplomatic warnings and military deployments earlier in the week, tensions sharply escalated. Israel has reportedly launched direct military strikes against Iran, marking a shift from strategic deterrence to active confrontation. The situation has materially heightened the risk of broader regional instability.
Previously, the Chinese Embassy in Iran urged citizens to closely monitor the security situation. The U.S. State Department approved the evacuation of non-essential personnel from Israel, while U.S. Ambassador to Israel Mike Huckabee advised Americans to leave immediately if planning to depart. Multiple countries, including Canada, India, Greece, France, and others, issued travel advisories or evacuation recommendations.
According to Reuters, the U.S. deployed the aircraft carriers USS Gerald R. Ford and USS Abraham Lincoln to the region, alongside 17 F-22 Raptor jets. U.S. President Donald Trump stated he was "not satisfied" with progress in nuclear negotiations but had not yet made a final decision regarding direct U.S. military action.
The third round of indirect U.S.–Iran negotiations in Geneva ended without agreement, though technical talks are scheduled in Vienna on March 2. While Oman indicated that Iran signaled willingness not to possess weapons-grade nuclear material, the outbreak of direct military confrontation significantly undermines diplomatic momentum.
Market impact: War risk premium expands
With direct hostilities now underway, the crude oil market has shifted from"anticipatory pricing" to "active escalation pricing." The key market concerns include:
- Potential disruption to Strait of Hormuz shipping lanes
- Risk of retaliatory strikes on regional energy infrastructure
- Heightened insurance and freight costs for Middle Eastern crude exports
Although no confirmed physical supply disruption has been reported yet, traders are factoring in tail-risk scenarios.
Supply-side pressure caps gains
However, supply fundamentals provide partial offset. U.S. EIA data showed crude inventories for the week ending February 20 surged by 15.99 million barrels, far exceeding expectations of a 1.48 million barrel build, reversing the previous week's 9.01 million barrel draw.
Additionally, amid fears of transport disruption, Middle Eastern producers such as Saudi Arabia and Iran have accelerated crude exports, increasing floating storage volumes and injecting additional seaborne supply into the market. This pre-emptive export surge may temporarily ease near-term physical tightness.
