From Hormuz to Houston: A Split Oil Market

Oil prices have surged globally after the US-Israeli coalition attacked Iran on 28 February, with global benchmark Brent trading around $110 per barrel on Friday. Middle Eastern grades have jumped even further, with Dubai crude briefly topping $150.

But not all oil is rising as rapidly. The gap between Brent and US crude WTI has blown out to its widest level in more than a decade. Briefly, Brent traded nearly 20 dollars higher than the US oil. The market is very volatile, but a Brent-WTI spread of 10-15 dollars has been a common sight in these past few weeks. Before the war, the normal spread was a few dollars.

The gap reflects where oil is produced, how it moves, and which parts of the market are exposed to the war.

Stuck Behind the Strait

Roughly one‑fifth of global oil supply normally flows through the Strait of Hormuz, a crucial shipping lane off Iran’s coast. Since the war escalated, Iran has managed to keep that narrow waterway almost fully shut. Missile strikes, drone attacks, armed speedboats, sea mines, and the loss of shipping insurance have kept most tankers anchored. Only a handful of vessels pass through under special arrangements.

The result is oil that exists in storage but cannot easily move. Physical supply has tightened fastest in Asia, where refineries depend on Gulf flows. Benchmarks tied to real cargo deals, such as Dubai and Oman, have surged far above Brent futures prices, reflecting how hard it has become to secure barrels that can actually be delivered.

Import‑dependent countries, including India, Japan, and South Korea, have already paid significant scarcity premiums for replacement supply. In those markets, the disruption is not theoretical.

Why Brent Is Running Ahead of US Oil

Brent and WTI are similar oil types, often described as light and sweet crudes (easier to refine). But Brent tracks global seaborne oil and is sensitive to shipping disruptions, while WTI is the bellwether of the American oil market.

Brent is technically tied to the North Sea oil, but it helps price more than two‑thirds of the world’s oil, including most Middle Eastern exports. Why? Not because of where it’s produced, but because of how it’s traded. It’s the global yardstick for oil that crosses oceans in tankers and competes for the same buyers. That’s why it reacts quickly to shipping disruptions.

WTI tracks oil that is largely produced, stored, and delivered inside the United States. About one‑third of the US crude is exported, but most barrels spend their life moving on land before reaching a refinery or a port. That structure reduces the direct impact of maritime chokepoints, even though global demand and exports still pull US prices higher. And when the US oil does get shipped in tankers, it doesn’t travel to the Middle East.

The widening Brent-WTI spread reflects how supply risks are being priced more in the seaborne market than inside the US system.

Why the US Fuel Prices Are Surging

This split helps explain why Americans are paying more at the pump even though WTI prices lag Brent crude.

Gasoline and diesel are priced in global markets. As Brent moves higher, fuel prices follow. A wider Brent‑WTI spread also makes exporting US crude more attractive, tightening supply for domestic refiners at the margin.

At the same time, refinery constraints matter. Many US refineries were built to process heavier imported crude, not the light shale oil the US now produces most. As a result, the country still imports roughly one‑third of the oil it consumes.

Together, those factors mean that higher global prices still feed through to American fuel costs.

Strong Profits, Slower Supply Response

For US oil producers, prices near $95 to $100 a barrel are very attractive. Most shale wells break even well below that level, and cash flows are improving. The US oil producers are likely to report a bumper first quarter.

But higher prices do not guarantee a surge in supply. Producers remain cautious after years of boom‑and‑bust cycles. Many are prioritizing dividends and balance‑sheet repair rather than rapid drilling. The inventory of drilled but uncompleted wells is smaller than in past upswings, and adding rigs takes time.

Some shale output may grow, but a flood of new US oil appears unlikely unless the high prices persist.

The United States is far less exposed to a Middle East–driven oil shock than it was in the 1970s, thanks to a surge in domestic production and inland infrastructure. But it is not sealed off. Disruptions in the Gulf still reach American consumers, filtered through global pricing rather than physical shortages.

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