The Iran conflict has triggered unusual oil market behavior, with futures in backwardation and crude prices exceeding $100. Here’s the latest market insight and expert analysis.
Due to growing concerns about supply shortages, far-month oil futures contracts on the European exchange are selling at a sharp discount to active months as a result of the Iran War.
Oil Futures React to Iran Conflict
As the crisis in West Asia intensifies, there are indications of disquiet in the crude oil futures market as traders compete to lock in barrels now rather than later.
In contrast to the typical behavior of oil markets during times of comfortable supply, when far-off month prices trade at a premium to the near month price, world oil futures for the distant months are currently trading at a severe discount to the near month. Prices are trading closer to the spot price in the near month.
London ICE Europe Contract Prices
At the time of writing, the June crude oil contract on London-based ICE Europe was trading at a $6.86 per barrel discount to the May contract of $104.53. The contrary was true on February 27, the day before the conflict started: according to Bloomberg, the June contract was somewhat more expensive than the May contract, which quoted at $72.48, by 39 cents.
In technical terms, this switching of discounts between near and far months—known as backwardation or inversion—indicates supply interruptions brought on by the conflict in West Asia. The most commonly traded oil futures contracts on ICE Europe right now are those for May and June. “The steep discount on ICE clearly indicates the supply distress due to the effective closure of Hormuz,” stated Sudhir Joshi, former director-finance of Bharat Petroleum Corp. Ltd (BPCL), who is credited with setting up the state-owned refiner’s oil trading desk in the early 2000s.
Impact of Supply Interruptions
In a normal market with plenty of supplies, the far-month futures trade at a premium to the near-month contract because the former accounts for storage and insurance. Joshi clarified that when there are significant supply interruptions, the market usually shifts into discount. During these periods, the near month, which often trades closer to the spot price, is more expensive than the far-month futures.
After Iran elected Mojtaba Khamenei as Supreme Leader to replace his deceased father, Ayatollah Ali Khamenei, Brent crude surged beyond $100 overnight, increasing the likelihood of a protracted battle. Israel has called him a “unequivocal target for death,” while the US has called the choice “unacceptable.” Futures prices could rise if a protracted conflict prolongs the blockage of oil supply chains.
Oil Prices and Emergency Stockpiles
Oil fell to $104.53 after rising 29% earlier in the day to near a four-year high of $119.50, following the announcement by the group of seven (G-7) finance ministers, headed by France, that it would think about releasing emergency stockpiles to alleviate the oil crisis.
Iran and Israel have attacked ships, gasoline depots, and refineries around the region since the start of the conflict. A quarter of the world’s crude passes through the Strait of Hormuz each year, and Iran has also vowed to attack ships carrying oil.
Analysts’ Predictions on Oil Prices
Regarding the pricing prognosis, analysts are still at odds. While Gnanasekar Thiagarajan, director of Commtrendz, predicts that crude will test $135 over a few days due to a “protraction of the conflict impacting production,” Naveen Mathur, director (commodities and currencies) at Anand Rathi Group, believes that crude will stabilize around $95 soon due to likely emergency supplies by the G-7 and “likely forbearance by the US for Russian supplies due to the war.”
It is interesting to note that active Brent options that expire on March 26 have the largest outstanding positions—40,868 contracts—at the $100 call strike, with a premium of $12 per contract as of the time of publication. This suggests that the sellers are currently baking in a maximum price of $112 till it expires. They retain the $12 premium that call buyers paid if crude expires at or below $112 by March 26. However, Joshi clarified that the option seller will suffer losses if volatility increases and crude surpasses $112.
According to Anand Rathi’s Mathur, the US Energy Information Administration estimated that the world’s crude production would be 106.77 million barrels per day in February, while demand would be 103.45 mmbpd in the first quarter of 2026.
🛢️ Oil Futures & Supply Alert
- Market Condition: Far-month contracts trading at discount
- Reason: Iran conflict & supply disruption
- ICE Europe: June contract $6.86 below May
- Risk: Prolonged disruption through Strait of Hormuz
- Expert Insight: Backwardation indicates immediate demand for oil
⚠️ G-7 Emergency Reserves & Price Outlook
- Peak Price Concern: Brent crude above $100
- Potential Ceiling: $112 via options market
- Analysts Forecast: $95–$135 depending on supply & conflict
- G-7 Role: Possible release of emergency stockpiles
- Impact: Volatility remains high until supply stabilizes
Frequently Asked Questions
1. What is the significance of Mojtaba Khamenei’s selection?
Following Ali Khamenei’s passing, Mojtaba Khamenei was selected as Iran’s next Supreme Leader. His selection raised concerns about a protracted regional conflict that may disrupt oil supply and heightened geopolitical tensions with nations like the United States and Israel.
2. What caused the price of crude oil to surpass $100?
Due to the conflict’s danger to supply lines, particularly the Strait of Hormuz, which transports 20% of the world’s oil, oil prices have gone up. Any interruption there might drastically cut the amount of oil available worldwide.
3. What does the oil market’s “backwardation” mean?
When short-term oil futures are more expensive than long-term contracts, this is known as backwardation. Because traders desire oil now rather than later, this typically implies shortfalls in supplies.
4. What impact did the war have on London’s oil futures market?
The June crude contract was $6.86 less expensive than the May contract on the London-based Intercontinental Exchange (ICE Europe), indicating a high demand for immediate supply because of concerns about interruption.
5. How might the price of oil change in the future?
Analysts do not agree. If the Group of Seven (G-7) releases emergency reserves, some predict that prices will level off at about $95. Others think that if the violence persists and supply networks continue to be interrupted, prices might increase to $135.
Conclusion
Global oil markets are now unclear due to the Iranian leadership change and the intensifying conflict in West Asia. Fear of supply disruptions, particularly through the Strait of Hormuz, has produced unusual pricing patterns in futures markets and driven crude prices above $100.
The length of the battle and whether or not big economies release emergency oil supplies will have a significant impact on the future course of oil prices.
Disclaimer: This article is for informational purposes only and does not constitute financial advice. Market conditions can change rapidly.
