"In late 2025, the World Bank projected commodity prices would fall another 7% in 2026. Fourth straight year of moderation. Brent was trading at $68–70 a barrel heading into year-end. Markets were pricing a glut, not a crisis. We thought so too."
The consensus entering 2026 was orderly decline. The World Bank's November Commodity Markets Outlook pointed to weak global activity, trade tensions, policy uncertainty, and ample oil supply as the dampening forces. Brent at ~$70 was not a floor — it felt like a ceiling, with OPEC+ aggressively hiking output since April 2025 to win back market share from non-cartel producers.
Natural gas told a more nuanced story. US Henry Hub had surged an estimated 60% year-on-year in 2025, driven by record LNG exports under Trump's expedited licensing programme. By December 2025, US LNG facilities were running at near-peak capacity. That detail would matter enormously six weeks later.
This is a classic case of anchoring bias at systemic scale. The June 2025 non-closure had set a false floor on geopolitical risk pricing. By Q4 2025, banks, trading houses, and treasury departments were modelling curves that reflected a supply-glut base case — overlaid with minimal geopolitical premium. That opinion flowed into hedging books and credit lines alike.
"On February 28, the United States and Israel launched coordinated strikes on Iran. Iran's Supreme Leader was killed. Within days, ship transits through the Strait of Hormuz collapsed from over a hundred per day to a handful. A 95% drop. Not a rerouting. A full closure. When does the Treasurer's worry escalate into panic mode?"
The Strait carries roughly 20 million barrels of oil and products per day — approximately 20% of global seaborne oil. The onshore pipeline alternatives across Saudi Arabia and the UAE handle at maximum 3 million barrels per day. There was no bypass at scale. When Iran's IRGC declared the Strait closed on March 2, the market had nowhere to go.
The Brent-WTI spread blowout deserves more attention than it received. A $12/barrel differential is not a footnote — it is a direct signal that every hedging programme built on WTI was now materially mis-hedged against Brent-priced physical cargoes. Basis risk exploded overnight. Risk managers who had been comfortable at a $2 spread were suddenly nursing a $10 gap in their hedging P&L.
The insurance market confirmed the severity before most financial models did. By March 9, war-risk insurance rates on tankers had increased four to six times over the previous week. The US government invoked the Terrorism Risk Insurance Act to backstop insurers. When the state has to step in to make insurance viable, that is not a "geopolitical premium" — that is market failure at a systemic level.
"When insurance markets seize, trade finance is implicated. A cargo with no viable insurance cannot secure a letter of credit. The banking system will notice this within days. Not weeks. That is how a physical supply shock slowly evolves into a credit event."
"The Strait of Hormuz is not just an oil chokepoint. It is the jugular vein of global industrial chemistry. And no one had built a risk framework for that.
I certainly hadn't. Not sure about the banks. And as it turns out, probably not the IEA."
Every commodity risk model I had ever seen was built around energy. What broke in March 2026 was not just energy — it was the entire petrochemical and agricultural input chain that depends on Gulf gas and LNG as a feedstock, not just a fuel.
Price spike vs. pre-conflict levels
The fertilizer dimension is where the second-order effects become food security within weeks, not months. The Gulf region produces nearly half of the world's urea and 30% of its ammonia. Unlike oil, the fertilizer sector has no internationally coordinated strategic reserves. There is no IEA equivalent for nitrogen and ammonia — no coordinated emergency release, no government stockpile protocol.
The AI connection bears naming directly, because it will resonate with any audience in 2026: helium is critical for semiconductor manufacturing cooling processes. A Middle East energy conflict disrupted the chip supply chain. The energy crisis was simultaneously a food shock, a manufacturing shock, a defence industrial shock, and an AI infrastructure shock.
"The energy shock was simultaneously a food shock, a manufacturing shock, a defence shock, and an AI infrastructure shock. No single risk framework anticipated that. And that is the problem we now have to solve."
"I am not a trader. I have never been a trader. But I have spent almost two decades financing their cargoes, managing their credit lines, and watching their margin calls land in my inbox. When oil goes from $70 to $120, the math is brutal. One cargo that cost $70 million to finance now requires $130 million. Same physical volume. Nearly double the funding."
The close-to-$50 move from pre-crisis Brent to peak Brent was not a price signal. It was a capital event. Imagine if a single $1 move in oil triggers approximately $40 million in margin calls — a $50 move then translates to roughly $2 billion in margin pressure on a single major trader alone, before accounting for positions across other product markets where the moves were sharper still.
The market's response confirmed the scale of the problem. Within weeks of the crisis breaking, Trafigura had secured a $3 billion contingent revolving credit facility — described explicitly as a liquidity buffer for margin calls. Vitol was reportedly in talks for $3 billion more. Gunvor was seeking $1 billion. That is over $7 billion in emergency credit lines sought simultaneously by just three trading houses.
Banks offered Trafigura $8 billion. Trafigura took $3 billion. Banks understand the value of funding relationships with systemically important counterparties under stress. The flight to quality in commodity finance was not just about risk aversion — it was about which relationships would define the next decade of commodity banking.
The insurance-to-trade-finance link was the hidden transmission mechanism. War-risk insurance collapse did not just strand ships — it froze the documentation chain entirely: no insurance, no letter of credit, no disbursement. Banks could not release funds against cargoes that had no insurable value. The credit system froze at the cargo level, not just the company level.
For developing country importers — already spending more on debt servicing than on health — the convergence of higher energy costs, weaker currencies, and frozen trade credit was existential. UNCTAD flagged the systemic risk transmission explicitly. The energy shock was an emerging-market sovereign debt event in slow motion.
"The $7 billion in emergency credit lines was not for new business. It was to keep existing business funded while prices doubled. That is how a supply shock becomes a credit event — and that is what every treasurer needs to understand before the next shock arrives."
"A $12 Brent-WTI spread is a technical detail. A $1.30 per gallon petrol spike is a household budget crisis. By April 2026, the US national average hit $4.50 a gallon. If you fill your SUV twice a week, you would have noticed your monthly fuel receipts exceeding $500 in total. Just petrol alone will remove another $150 from your discretionary spending. Not because of a tax. Because of a chokepoint 7,000 miles away."
The pass-through from commodity shock to consumer price is not immediate — hedging programmes, fuel surcharge structures, and base fare mechanisms create a lag of four to eight weeks. But by late March, the lag had run out. Diesel, which powers trucks and farm equipment, hit $5.52 per gallon in the US on April 3 — within 30 cents of its all-time record.
Air travel illustrated the pass-through vividly. Jet fuel peaked at approximately $197 per barrel during the crisis — a level that pressures airline operating economics at the margin. For a family of four flying London to Bangkok in economy, the fuel surcharge uplift added £700–1,000 to the round-trip cost. That is the same shock that broke credit lines, expressed in a holiday budget.
The food price transmission was slower but potentially more durable. With fertilizer prices up 50% and farmers in the Northern Hemisphere reducing application during the spring planting window, the impact on corn, wheat, and rice yields — and therefore on food prices into 2027 — was baked in before any ceasefire.
"That family doesn't care about Brent-WTI spreads. But they should — because their summer holiday just became £1,000 more expensive. The same supply shock that broke credit lines also broke household budgets. That is why commodity finance matters. Not because markets move, but because people pay."
"On April 8, oil plunged below $100 a barrel. The Dow surged 1,300 points. Headlines called it a ceasefire relief rally. But oil at sub-$100 is still $30 above pre-war levels. The war premium has been compressed, not eliminated. The ceasefire is a pause, not a resolution."
The two-week ceasefire brokered through Pakistan — contingent on Iran's complete and immediate opening of the Strait — triggered a 13% intraday drop in Brent and WTI. Markets reacted to the removal of the extreme tail risk. They did not price a resolution, because there is no resolution yet to price.
Iran's 10-point proposal includes lifting all sanctions and accepting its uranium enrichment programme. These are not conditions resolved in two weeks. The deep trust deficit on both sides — US concerns about Iran's nuclear programme, Iran's scepticism about US intentions given prior agreement withdrawals — makes a permanent settlement structurally difficult.
What the ceasefire does not fix:
More than 3 million barrels per day of Gulf refining capacity remained offline due to attacks and the lack of viable export outlets. Qatar's LNG export capacity was down 17% for an estimated 3–5 year recovery horizon — this is the timeline from official reports, not an analyst estimate. Fertilizer supply restarts take weeks, and the Northern Hemisphere planting window does not extend to accommodate diplomatic timelines.
The underlying question — what is the correct long-run risk premium for the world's most critical energy chokepoint, now that it has been weaponised — remains entirely open. The geopolitical risk premium that was priced at near-zero for a decade is being permanently reset. No one has built the framework for the new level yet. That is the work ahead.
"The question isn't whether Hormuz will close again. It's whether treasury can still fund all the positions even when it does."