Brent crude, the global benchmark for oil pricing, briefly crossed $100 per barrel following the outbreak of conflict involving the United States, Israel, and Iran. It was trading at approximately $99 on Thursday. On Monday, the price had spiked to nearly $120 per barrel before retreating. Before the United States and Israel attacked Iran on February 28, Brent was selling at approximately $73 per barrel. The roughly $27 increase represents one of the largest short-duration oil price shocks in recent years.
The Strait of Hormuz and Why It Matters
The immediate cause of the oil price surge is the closure of the Strait of Hormuz. The strait is a narrow waterway off Iran's southern coast that connects the Persian Gulf to the Gulf of Oman and the Arabian Sea. Approximately 20 percent of global oil supply normally passes through it, including large volumes from Saudi Arabia, Iraq, the United Arab Emirates, Kuwait, and Qatar.
The strait is 54 kilometres wide at its narrowest point, with usable shipping lanes of only about three kilometres in each direction. Its bottleneck geography makes it one of the most strategically important waterways in the world for energy markets.
Countries that depend heavily on Persian Gulf crude face immediate supply chain challenges when the strait is closed. They must choose between:
- Drawing down strategic reserves.
- Seeking alternative crude sources at higher cost.
- Reducing consumption.
The United States has significantly reduced its dependence on Middle Eastern crude through domestic shale production. It is less exposed to the physical supply disruption but still affected through the global price benchmark.
Mexican Crude and US Benchmarks
West Texas Intermediate, the US crude benchmark, rose to $95.73 per barrel on Thursday. Mexican crude closed at $81.59 per barrel. Both sit below Brent's level, reflecting the typical price discount applied to Mexican and US crudes due to quality and logistics factors.
Mexico's domestic fuel supply is primarily derived from its own crude production processed in Pemex refineries. It does not depend on Persian Gulf imports. This insulates Mexico's physical fuel supply from the Strait of Hormuz disruption. However, Mexican crude prices still track international benchmarks in the direction of price changes. The government therefore faces margin pressure on the retail cap even without a direct supply chain disruption.
How Long the Disruption May Last
Oil price shocks driven by geopolitical supply disruptions are historically difficult to forecast in duration. Previous events range widely:
- The 1973 OPEC oil embargo lasted five months.
- The 1980 Iran-Iraq War disrupted Gulf supply for nearly a decade at varying intensity.
- The 2019 attacks on Saudi Aramco facilities caused a spike that resolved within weeks once production was restored.
The current conflict's duration and its implications for the strait depend on military and diplomatic developments that cannot be predicted.
For Mexico's price cap policy, the relevant question is how long the government can maintain below-market prices if Brent remains above $100 per barrel. The IEPS lever has finite fiscal capacity. Pemex CEO Rodríguez Padilla's comments about a potential diesel cap suggest the government is planning for an extended high-price environment rather than assuming a rapid resolution.
Frequently Asked Questions (FAQs)
Q: Why have oil prices risen sharply in early 2026?
A: Oil prices rose sharply following the outbreak of conflict involving the United States, Israel, and Iran. The closure of the Strait of Hormuz, through which approximately 20 percent of global oil supply normally passes, created a significant supply constraint. Brent crude briefly crossed $100 per barrel, up from approximately $73 before the conflict began on February 28.
Q: What is the Strait of Hormuz and why does its closure affect oil markets?
A: The Strait of Hormuz is a narrow waterway off Iran's southern coast connecting the Persian Gulf to the Gulf of Oman and the Arabian Sea. Around 20 percent of global oil supply normally transits through it, including large volumes from Saudi Arabia, Iraq, the UAE, Kuwait, and Qatar. Its closure prevents that supply from reaching buyers, forcing affected countries to draw down reserves or seek more expensive alternative sources.
Q: What is the current price of Brent crude and other benchmarks?
A: As of Thursday, Brent crude was trading at approximately $99 per barrel, down from a Monday spike to nearly $120. West Texas Intermediate was at $95.73 per barrel and Mexican crude closed at $81.59 per barrel. Brent was approximately $73 before the conflict began on February 28.
Q: Why is Mexico less directly exposed to the Strait of Hormuz closure than other countries?
A: Mexico produces its own crude oil through Pemex and supplies its refineries with domestically produced crude rather than Persian Gulf imports. The closure does not directly disrupt Mexico's physical fuel supply. However, Mexican crude prices track international benchmarks, meaning higher global oil prices still increase the cost pressure on Mexico's domestic fuel pricing and on the government's ability to maintain the retail cap.
Q: How long might the oil price spike last?
A: The duration of geopolitical oil price disruptions is historically unpredictable. Events range from weeks to years depending on military and diplomatic developments. Pemex CEO Víctor Rodríguez Padilla's comments about a potential diesel price cap suggest the Mexican government is planning for an extended high-price period rather than assuming a rapid resolution.
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