Oil's furious rise continues as the Middle East conflict shows no signs of abating. Faced with the worst oil supply shock since the 1970s, all eyes are on Washington's response mechanisms as oil breaches the $100/bbl mark. To date, neither White House policy prescriptions nor upbeat television soundbites have alleviated acute market anxiety about the shipping standstill and cascading shut-ins across the region.
Duration will be the determining factor of the ultimate price trajectory for energy. With no clear definition of what winning looks like, it is hard to forecast whether this will be a multi-week or multi-month conflict. Given the course of events, it is unclear whether the administration built an exit on its way into this latest military entanglement.
With oil soaring above $100/bbl for the first time since 2022, the endgame for the Iran war remains elusive. Trump administration officials have floated a variety of goals from "complete surrender" to the eradication of the Iranian nuclear and missile programs as well as the destruction of its proxy networks. There are no indications that either side is backing down at this stage, with the IRGC apparently operating under the belief that they merely must survive the barrage of U.S. and Israeli missiles and impose enough economic cost to force their adversaries to define success down. The evacuation of U.S. diplomats in Saudi Arabia points to a rapidly deteriorating security environment across the region.
From conversations in Washington, there seems to be a prevailing view that the U.S. military is meeting its initial tactical objectives, with the Iranian missile and launcher stockpiles dwindling alongside formal naval assets. And yet, Iranian drone capabilities remain substantial and are expected to be deployed more heavily, as they can be launched from anywhere and have a 1500 km range. The IRGC is also thought to have an ample supply of small, fast boats that can be packed with explosives to target ships or to mine key ports and waterways.
The Houthis, which are thought to have additional drone stockpiles and manufacturing capabilities, are reportedly waiting on the sidelines at this stage. However, the Yemeni group is expected to enter the conflict if the IRGC calls upon them, which could once again imperil maritime traffic in the Bab el Mandeb, Red Sea, and Gulf of Aden. Certainly, Saudi Arabia's ability to divert significant crude flows through Yanbu would be jeopardized if the Houthis become an active participant in the conflict. A more narrowly focused U.S. effort could purportedly be completed in three weeks. However, a more expansive regime eradication effort points to a much longer operation, with escalating humanitarian and economic costs.
"With no clear definition of what winning looks like, it is hard to forecast whether this will be a multi-week or multi-month conflict."
Helima Croft, Head of Global Commodity Strategy and MENA Research, RBC Capital Markets
Trump administration officials continue to insist that the navigation issues with the Strait of Hormuz are transitory, and that there is an abundance of oil. However, there are no indications that the U.S. Development Finance Corporation (DFC) insurance proposal will incentivize the movement of ships in the coming days, with the drone threat remaining ever-present and key plan details still in the TBD phase.
On March 6, the DFC and Treasury Secretary Bessent announced a revolving $20 billion maritime reinsurance facility in partnership with U.S. insurance companies. With details on which tankers will be able to access this facility limited, and the fact that the potential insurance exposure of the vessels currently in the Gulf likely well exceeds not only the $20 billion reinsurance facility, but potentially the entire DFC's $205 billion statutory risk limit, it is unclear that the insurance plan will allow flows to resume en masse.
Moreover, physical ship security remains a key roadblock at this stage. It could be challenging for the U.S. to simultaneously conduct offensive operations against Iran and at the same time provide a robust tanker escort service. Kuwait Petroleum Corporation CEO Shaikh Nawaf Al Sabah indicated that his company is seeking some level of assurances of safe passage from the U.S. Navy to move its strategic tanker fleet through the Gulf, and notes that this has not yet been achieved. His comments have been echoed by shippers, with several noting that even if there is a solution to the insurance dilemma, the safety of crew and ships is a main concern.
Meanwhile, shut-ins are surging as storage reaches tank tops across the region. Storage constraints continue to pressure Middle Eastern producers to shut in production, with KPC announcing its move to reduce both crude and product output amidst the closure of the Strait. While the magnitude of reduction has not been stated, Kuwait emphasized it will continue to satisfy domestic supply and that it remains ready to scale production back up once present risks cease. There is considerable risk of incremental shut-ins, with ADNOC stating that it is managing production with an eye on storage, though it has yet to announce curtailments.
At the same time, infrastructure attacks continue to threaten regional supplies. Saudi Arabia's 1 mb/d Shaybah oil field was targeted this weekend, though reports suggest that there was no damage. Meanwhile, Israel has begun targeting energy infrastructure in Iran, with attacks on refining and storage facilities this weekend. Depots in Tehran and Alborz were reportedly struck, though officials in Iran indicated that the Tehran refinery remains unaffected.
"While there may be ample oil, as long as it remains stranded or in the ground, it serves no effective purpose for consumers."
Helima Croft, Head of Global Commodity Strategy and MENA Research, RBC Capital Markets
Russia has emerged as a key beneficiary of this conflict thus far, as evidenced by the U.S.'s move last week to issue sanctions exemptions for some Indian purchasing of Russian oil. While the trade has continually been targeted by a layered sanctions infrastructure from the U.S., EU, and UK, this potentially opens the door for a further relaxing from Washington, with Treasury indicating an ongoing exploration of the possibility. Following tighter sanctions, Indian imports of Russian crude had softened incrementally since November, and Russian crude in floating storage subsequently climbed this winter.
That said, the Russian release valve has limitations at this stage, given the near-term duration of waivers (to early April) and the stronger underpinnings of other sanctions infrastructure such as Congress-backed measures and EU packages. In addition, Ukraine shows no sign of backing off its attacks on Russian energy facilities. Critically, as the magnitude of disruption expands and the conflict continues, these barrels will not be adequate to blunt the impact to the market.
Iran's Assembly of Experts selected Mojtaba Khamenei to succeed his father as the new Supreme Leader and is seen as a candidate who will quickly consolidate power and assert control over the regime. This marks the first time since the 1979 Islamic Revolution that Iran's Supreme Leader has passed from father to son, a polarizing transfer of power for a state founded explicitly to overthrow hereditary rule after the Shah. With strong support of ultra-conservative clerics and most of the IRGC, the appointment of the 56-year-old likely signals a continuity of his father's hardline approach to rule and a defiance of calls to surrender, potentially leading to further escalation of the conflict.
The question now is how President Trump will react to this succession plan, as he signaled his desire to be involved in choosing the new leader and has previously called the younger Khamenei an unacceptable choice. Moreover, given that Khamenei has lost his father, mother, wife, and son in U.S. airstrikes, he may not be in the mood to extend an olive branch to Washington.
Helima Croft authored "Iran Flashpoints: High Anxiety," published on March 8, 2026. For more information on the full report, please contact your RBC representative.
