Middle East Tensions Drive Oil Prices Near $112: Geopolitical Risk Premium Outweighs Supply Recovery

On October 22, 2026, Brent crude oil prices climbed to nearly $112 per barrel, approaching the $115 peak reached in early May. U.S. WTI crude traded around $99, below its April high of over $117. This rally reflects growing concerns about renewed conflict in the Middle East, fueled by reports that the United States and Israel may resume military action against Iran after the midterm elections.

Notably, this price increase occurs despite signs of supply recovery. According to Reuters, citing Kpler data, flows through the Strait of Hormuz increased to 11.7 million barrels per day this month from 9.75 million in September, representing about 82% of pre-war levels and well above April's low of roughly 1 million barrels per day. However, Houthi drone strikes on Saudi energy infrastructure and Iranian claims of hitting vessels in the Persian Gulf indicate that physical supply restoration has not alleviated fears of disruption to key transport routes and production facilities.

The New York Times, citing U.S. officials, reported that Washington and Jerusalem are preparing contingency plans targeting Iran's energy, nuclear, and military assets. Meanwhile, The Wall Street Journal noted that Iranian floating oil storage has been effectively depleted due to a U.S. naval blockade, removing a critical supply buffer. Van Luu, global head of solutions strategy at Russell Investments, stated, "The risk of escalation in the Middle East is back at the forefront of investors' minds."

For investors, current market dynamics suggest traders are pricing in future supply risks rather than current conditions. A decisive move above the previous high of $115 could renew inflation concerns, potentially reverberating across global stock and bond markets. The market appears to be assigning greater weight to a geopolitical risk premium that may persist as long as the conflict drags on.