A sudden escalation in the Middle East sent commodity markets into turmoil on March 2, with gold vaulting above $5,400 an ounce and Brent crude spiking sharply after an opening surge of nearly 13%. COMEX futures traded at $5,400.6 per ounce (up 2.9%) while London spot gold was around $5,376.2 (up 1.9%). Brent initially jumped to $81.57 per barrel and was trading near $78.33 (a 7.5% rise) by the time of publication.
The market moves followed a dramatic turn of events on Feb. 28, when US and Israeli forces struck targets in Iran and Iran launched retaliatory attacks. State sources say Iran’s Supreme Leader Ali Khamenei and former president Mahmoud Ahmadinejad were killed in the strikes. Fighting between the parties is reported to be ongoing, heightening fears of a broader regional conflagration.
Tehran’s immediate response included a declaration by the Islamic Revolutionary Guard Corps on Feb. 28 banning any vessel from transiting the Strait of Hormuz. Real‑time shipping trackers showed tanker traffic around the strait slow to a standstill, with many vessels anchored or diverting, and state outlets reported an unauthorised tanker struck while attempting passage. The practical effect was an abrupt squeeze on seaborne flows from the Gulf.
The Strait of Hormuz links the Persian Gulf to the Arabian Sea and is one of the world’s most critical energy chokepoints: roughly one‑fifth of global crude oil and liquefied natural gas transits the narrow two‑mile‑wide channel. Analysts cited in Chinese coverage estimate that a closure could remove between 8 million and 10 million barrels per day from global markets — a shock equal to roughly 8–10% of daily world oil consumption and far larger than routine OPEC+ adjustments.
Producers attempted a partial policy response: on March 1, eight major oil exporters agreed to raise collective output by 206,000 barrels per day in April and said they would flex production further as market conditions warrant. That increment is small compared with the potential shortfall if Hormuz remains closed, and market commentators quickly noted that it would not prevent a near‑term price spike. Royal Bank of Canada analysts warned that regional leaders have signalled oil could exceed $100 per barrel in a wider war scenario, while other banks suggested a sustained floor well above $90 is possible in the near term.
The turmoil pushed investors back into traditional safe havens. Banks and brokerages had already been raising bullish forecasts for gold: ANZ had suggested in mid‑February that gold could reach $5,800 an ounce in the second quarter if geopolitical tension increased and global monetary easing resumed, while JPMorgan in late February raised its near‑term and long‑term expectations, forecasting strong central‑bank and investor demand that could drive spot gold materially higher through 2026.
The wider implications are acute. A prolonged disruption through Hormuz would raise shipping insurance and freight costs, prompt re‑routing through longer corridors and pipelines, and increase inflationary pressure in import‑dependent economies. Policymakers face a trade‑off between releasing strategic petroleum reserves to calm markets and avoiding measures that might entrench price volatility or embolden further geopolitical brinkmanship.
Markets will likely remain highly sensitive to developments on the ground, OPEC+ statements and any international diplomatic or military escalations. Until there is clear evidence of de‑escalation or an alternative, sustained supply route, commodity prices and insurance premia around Gulf shipping are likely to remain elevated, with knock‑on risks for global growth and monetary policy calibration.