Oil prices rose again yesterday amid the ongoing conflict in the Middle East. However, President Trump’s promise to facilitate tanker traffic through the Strait of Hormuz pulled prices back from recent highs.
Energy- Asian LNG prices surge further
Oil prices surged above US$85/bbl yesterday, reaching their highest level since July 2024, amid growing concerns over oil flows through the Strait of Hormuz. There’s also growing unease about the damage to energy infrastructure resulting from attacks. However, the market gave back some of its gains to settle at US$81.40/bbl after President Trump said the US will ensure vessels can navigate the Strait of Hormuz and offer naval escorts if needed.
The promise of such guarantees comes as insurers are cancelling war risk coverage for vessels moving through the Strait of Hormuz. This is welcome news, but clearly it won’t happen overnight. Naval escorts would be helpful, but again, this effort will take time. Naval escorts will be sitting ducks to Iranian attacks. So, the US may choose to wait before escorting vessels until it gauges that Iran’s ability to attack has been degraded. In addition, China is calling for the uninterrupted flow of energy shipments through the Strait of Hormuz. With the Iranian regime effectively fighting for its survival, it may choose to ignore China’s calls.
The disruption to oil flows through the Strait is starting to affect oil flows further upstream. There are reports that Iraq has started shutting in production at the Rumaila field, the country’s largest, and at West Qurna 2, with 1.2m b/d going offline. The risk of further reductions in the coming days remains. Capacity constraints are the issue for Iraq, with storage tanks filling up, and a lack of available tankers in the Persian Gulf. Obviously, the longer disruptions persist, the more upstream production shut-ins we will see from the region. This highlights a key issue regarding OPEC’s spare production capacity, with the bulk of it located in the Persian Gulf. So, it’s of little help to the market amid Strait of Hormuz disruptions. Clearly, stronger OPEC output would help the market rebuild inventories once oil flows resume.
Middle distillate prices continue to see larger movements. ICE gasoil has now broken above US$1,000/t, while the crack is trading above US$41/bbl. There are sizeable volumes of refined products that pass through the Strait of Hormuz, while disruptions to crude flows also mean refiners elsewhere may reduce run rates. In addition, if energy concerns continue to grow, we wouldn’t rule out some countries imposing export limits on refined products, which could add to tightness.
The gas market continues to strengthen. TTF settled almost 22% higher yesterday, leaving front-month futures a little over EUR54/MWh. Moves in Asia have been even more aggressive, with the JKM-TTF spread surging to more than US$6/MMBtu yesterday. This makes sense, given that Asian buyers will be most affected by the disruption to Persian Gulf LNG flows; more than 80% of LNG from the region ends up in Asia. As a result, Asian buyers have had to enter the spot market to secure an alternative supply. This will increase competition between Asia and the EU for LNG cargoes. It’s a concern for Europe, where gas storage is much tighter than usual at just under 30% full.
The US natural gas market is better insulated from developments in the Middle East. The US is basically exporting LNG at capacity, so it’s not going to lead to any additional tightness in the US balance. If anything, stronger crude oil prices could see increased US associated gas production, which could mean the potential for a relatively looser US balance through 2027.
Metals – and silver sell off
Gold and silver sold off sharply in Tuesday’s afternoon trading, reversing earlier haven-driven gains as a stronger US dollar and higher yields reasserted themselves.
Gold dropped more than 5%, briefly falling below $5,000/oz, ending a four-day rally fuelled by escalating geopolitical tensions. The pullback reflected renewed upward pressure on the dollar and bond yields, as rising energy prices revived inflation concerns and reinforced expectations that the Federal Reserve will keep policy restrictive for longer — a headwind for non-yielding assets. Also, equity losses triggered forced liquidation of metals to meet margin calls.
plunged to lows near $77/oz. Its sharper decline reflects silver’s dual role as both a precious and industrial metal, leaving it more exposed to shifts in growth expectations, liquidity and positioning.
Geopolitics continue to provide marginal support, but macro forces dominate near‑term price action. Much now depends on the duration of the Middle East conflict. Prolonged escalation would favour gold, while stabilisation would leave it exposed to macro headwinds.
Central bank demand remains a key structural pillar, but momentum softened at the start of the year. According to the World Gold Council, central banks bought a net 5 tonnes of gold in January. This is well below the 2025 monthly average of 27 tonnes and the weakest month since late 2024. Volatile prices and seasonal factors may have contributed to the slowdown. Importantly, though, the demand base broadened, with new buyers emerging. Malaysia made its first net purchase since 2018, while the Bank of Korea signalled a return to gold investment after more than a decade. Buying remained concentrated in Central and East Asia, while Russia was the largest net seller, at 9 tonnes, during the month. The World Gold Council noted that geopolitical uncertainty is dominant, suggesting that official-sector accumulation is likely to continue over time, even if the pace is uneven month to month. As such, central banks continue to provide an underlying floor for gold prices, despite near‑term fluctuations in demand.
In the near term, gold remains caught between safe-haven demand and macro pressure. Sustained upside would require either prolonged geopolitical stress or renewed Fed easing, while silver continues to exaggerate moves on both sides.
Agriculture– White sugar premium widens on Middle East conflict
The prompt white sugar premium surged to $107/t yesterday, the highest level since 30 September, amid rising concerns about refined sugar supply amid the Iran conflict. Regional refiners, including Dubai‑based Al Khaleej, which has a capacity of around 1.8mtpa, will face challenges in receiving raw sugar cargoes through the Strait and, obviously, exporting refined white sugar. As a result, this could lead to a tightening in the refined white sugar market.
On the other hand, rising crude oil prices amid ongoing geopolitical tensions could mean further upside in Brazilian ethanol prices. This could prompt sugar producers to allocate even more cane towards ethanol production, helping to eat into the large expected global sugar surplus.
Turning to grains, the Strait of Hormuz closure presents a structurally bullish backdrop. Wheat remains the most exposed, while corn faces moderate risk. Soybeans are likely to be affected indirectly through fertiliser and energy markets rather than direct trade disruptions. The Gulf region —including Iran, Iraq, and Saudi Arabia — relies heavily on imported wheat. Dependence is increasing gradually due to demographic pressures and climate-related challenges.
Arab countries across the Middle East and North Africa source roughly 60% of grains from imports, relying on two critical trade routes: the Strait of Hormuz and the Red Sea. With the Strait reportedly closed and carriers suspending Red Sea transit amid escalating conflict, exporters are increasingly forced to reroute via the Cape of Good Hope. This diversion significantly increases transit times and tightens the effective supply of vessels.
The Gulf remains a key global hub for nitrogen-based fertilisers, supplying 40–50% of internationally traded volumes, with most of these volumes transiting through the Strait of Hormuz. Trump recently said that the US military action against Iran could last for weeks and potentially even longer. A prolonged disruption would significantly tighten fertiliser availability in major import-dependent regions such as Brazil, India, South Asia, and parts of the EU. In the near term, however, US farmers face the greatest exposure due to elevated seasonal demand. Rising nitrogen (urea, ammonia, UAN) and phosphate prices would pressure farm margins and could reduce yield potential for nitrogen-intensive crops such as corn and wheat. Corn production is somewhat less vulnerable given its broader geographic diversification.
Meanwhile, Urea, a core nitrogen fertiliser, is heavily supplied by Qatar, Iran, Saudi Arabia, and the UAE, which collectively account for 40–50% of global exports. Conflict-driven shutdowns and curtailed LNG output in Qatar—an essential feedstock source—have already disrupted around 11% of global urea shipments. These constraints further strain global supply and may prompt buyers to rely more heavily on China. It’s currently the only major producer capable of meeting near-term shortfalls as the fertiliser application season begins.