Oil Prices Rise as Iran Threatens to Expand Retaliatory Strikes

The first alarm sounded just past midnight, as Hezbollah fired what was described as "a barrage of rockets and a swarm of drones" across the Lebanese border toward northern Israel. By the morning of March 2, oil markets had absorbed yet another shock.

Brent crude futures rose 36 percent from February 27, the last day of trading before the war started, through March 27, when they traded above $113 a barrel. The Strait of Hormuz has been effectively closed for almost four weeks, throwing global oil markets into chaos. The International Energy Agency estimated that global oil supply would plunge by 8 million barrels per day in March, with curtailments in the Middle East partly offset by higher output from non-OPEC+ producers.

The latest signals from Tehran suggested the disruption would deepen. Iran's Islamic Revolutionary Guard Corps threatened to target American and Israeli universities across the Middle East, framing the move as retaliation for strikes that damaged universities in Tehran and Isfahan. The IRGC declared all such institutions "legitimate targets" and warned that "all employees, professors, and students of American universities in the region, as well as residents in surrounding areas," should stay at least one kilometer away.

The American University of Beirut moved to online learning in response. "Like many of you, we learned early this morning of threats issued against American universities in the region," the university's president said in a statement.

Hezbollah's leader escalated the rhetoric further, denouncing what he called the killing of Supreme Leader Khamenei as "the height of crime" and pledging to "undertake our duty of confronting the aggression" by Israel and the United States. The IDF responded to the overnight rocket-and-drone barrage with air and naval strikes on Beirut's southern suburbs and ordered evacuations from more than 50 southern and eastern villages.

The conflict's geographic footprint widened further on Saturday when Yemen's Iran-backed Houthi group announced it had fired two missiles at Israel, its first such strikes since the war began. The Houthis warned of further attacks "until the criminal enemy ceases its attacks and aggression."

President Trump has discussed the possibility of seizing Kharg Island, a five-mile-long coral outcrop that accounts for more than 90 percent of Iran's oil exports. Trump confirmed on March 13 that the United States had bombed the island, targeting Iran's most critical oil terminal in an attack Tehran warned would escalate the conflict. Any ground seizure would formalize control over the infrastructure at the core of Iran's export economy.

Three scenarios now dominate energy-market calculations.

In the first, Iran escalates enforcement of the Hormuz closure, mining additional shipping lanes and interdicting tankers from neighboring Gulf states. That scenario puts roughly 20 million barrels per day of global supply at risk and could push Brent past $140, approaching the all-time record of $147 reached in July 2008. Stopgap measures to soften the blow of the oil cutoff have kept crude prices relatively low in US and European markets, but analysts warn that when those measures lose their effectiveness in early-to-mid April, there will be little governments can do to keep energy prices from rising dramatically.

In the second, Iran activates its proxy network against Gulf energy infrastructure beyond Israeli targets. Reports that Tehran struck water and power facilities in Kuwait signal a willingness to hit civilian supply chains. Saudi and UAE production facilities represent a far larger prize; any successful strike there could add another 10 to 15 percent on top of current prices.

In the third, Pakistan-brokered negotiations gain traction. Iran has already allowed 20 Pakistani ships to pass through the Strait of Hormuz, a narrow but measurable signal of flexibility. A verifiable ceasefire and reopening of the strait would likely pull Brent back toward $80 to $90 per barrel, though analysts warn that rebuilding market confidence after a near-complete month-long closure will take considerably longer than the fighting itself.

Iran's president Masoud Pezeshkian issued a video apology to neighboring countries on March 7 for strikes attributed to Iranian forces, a move that surprised many observers. It changed nothing on the ground: strikes linked to Iran's forces continued through the week, and the IRGC's university threats over the weekend signaled that the apology reflected tactical optics rather than any strategic pivot.