The market awaits the end of the war, but oil prices are pricing in a protracted conflict

Original Author: Garrett

Original Compilation: Peggy, BlockBeats

Editor’s Note: While the market still views oil price volatility as a “resultant variable” of the war, this article argues that what truly needs to be understood is how the war itself is being priced through oil.

As the Strait of Hormuz remains blocked, the global crude oil supply system is forced to restructure—Asian buyers are shifting to U.S. crude on a large scale, and WTI surpassing Brent signifies structural changes in pricing mechanisms and trade flows. Short-term price spreads can be explained by contracts, but the deeper issue is “who can still supply.”

The author further points out that the key market misjudgment lies not in price, but in time. The futures curve still implies a premise: the conflict will end in the short term, and supply will recover. However, the more likely path is a prolonged war of attrition. This means that elevated oil prices are no longer a temporary shock but will evolve into a more persistent structural state, with the range potentially shifting upward to $120–150.

Under this framework, crude oil is no longer just a commodity; it becomes the “upstream variable” for all assets. Its repricing will transmit layer by layer through interest rates, exchange rates, the stock market, and credit markets.

The market has priced in the occurrence of the war, but not its persistence.

The following is the original text:

Trump gave Iran a 10-day deadline. That was a week ago. Yesterday, he reminded everyone again: the countdown is now 48 hours. Tehran’s response: No.

Five weeks ago, on February 28th, when U.S.-Israeli warplanes struck Iran, the market’s pricing logic was still that of a “surgical” airstrike: two weeks, three at most; the Strait of Hormuz reopens; oil prices spike and then fall back, everything returns to normal.

But our judgment at the time was: It won’t.

From day one, our core view has been that this war will escalate first and only possibly de-escalate much later. The most likely path is the involvement of ground forces, evolving into a long and draining conflict. The duration of the Strait of Hormuz disruption will far exceed the assumptions the market is willing to model. We have laid out the complete logic in our duration framework, Hormuz pricing model, and war variable analysis.

The core judgment is simple: Iran doesn’t need to win; it just needs to raise the cost of the war high enough to force Washington to seek an exit path. And this “exit” will not be accompanied by the smooth reopening of the Strait.

Five weeks later, every key part of this judgment is being validated step by step. The Strait of Hormuz remains closed. Brent crude settled around $110. The Pentagon is preparing for weeks of ground operations. Trump’s war objectives have also slid from “denuclearization” to “bombing them back to the Stone Age,” yet he still cannot clearly تحديne what “victory” is.

The commitment of ground forces is the escalation inflection point we have been tracking. Marine and airborne units are already assembling in the theater; this moment is approaching.

But more critical than the next airstrike or the next ultimatum is oil.

Oil is not a byproduct of this war; oil is the core of the war itself. The stock market, bond market, تشفير market, the Federal Reserve, even your daily grocery bills—everything is a downstream variable. Get the oil price right, and everything else unfolds accordingly; get it wrong, and every other decision becomes meaningless.

WTI crude prices have just exceeded Brent for the first time since 2022, a change that has already caught the market’s attention.

Good. As it should be.

WTI Above Brent: What Everyone Is Asking

On April 2nd, WTI crude settled at $111.54, while Brent settled at $109.03. WTI’s premium over Brent was $2.51, the largest spread since 2009. Just two weeks ago, WTI was at a significant discount to Brent.

Everyone is asking: What happened? Below is the brief version, and the version closer to reality.

Brief Version: Contract Maturity Mismatch

The WTI front-month contract corresponds to May delivery, while Brent’s front-month contract has already rolled to June. With supply so tight, “delivery one month earlier” means a higher price—WTI just happens to have an earlier delivery date.

Adi Imsirovic, a 35-year veteran oil trader now at Oxford, says that on top of historically high freight and insurance costs, buyers are willing to pay nearly $30/barrel more for Brent crude delivered a month earlier. In his 35-year career, he has never seen anything like this.

This is a “mechanism-level” explanation—it’s correct, but incomplete.

Real Version: The Entire Price Curve Is Shifting

The convergence of WTI and Brent is not just a sporadic mismatch in front-month contracts. Bloomberg points out that this phenomenon is clearly visible across multiple contract months, running through the entire forward curve. In other words, the entire price curve is being repriced.

Why? A shift in Asian demand. In late March, Asian refiners locked in about 10 million barrels of U.S. crude for May loading; they also purchased about 8 million barrels the week before. Kpler expects U.S. crude exports to Asia to reach 1.7 million barrels per day in April, up from 1.3 million bpd in March. China, South Korea, Japan, and ExxonMobil’s refinery in Singapore are all buying U.S. crude—because it’s currently “the only cargo still available.”

The Strait of Hormuz remains closed. Abu Dhabi’s benchmark crude Murban—the closest substitute to WTI—has disappeared from the global market. WTI is becoming the world’s “marginal pricing oil.”

This is not panic buying; it’s a change in flow structure.

Now look at the forward price curve again.

This curve is signaling: This is just a temporary shock; by Christmas, everything will be back to normal.

Our judgment is: This curve is “dreaming.”

Three Endings, One Baseline Path

We have already presented this analytical framework in the “Weekly Signal Playbook.” So far, nothing has changed; if anything, the probability of the baseline scenario has only strengthened.

This war will ultimately end in only three ways:

The chart lists three outcomes: 1. Complete U.S. withdrawal from the Middle East; 2. Regime change in Iran (similar to Iraq 2003); 3. Long-term war of attrition.

Outcome one is almost politically impossible.

Outcome two is also untenable: terrain conditions, troop requirements, and the logic of guerrilla warfare evolution all indicate this path is costly and difficult to conclude. Iran’s land area is three times that of Iraq, its population nearly twice as large, not to mention the mountainous terrain that leaves no room for invaders. This is not 2003.

Outcome three is the baseline scenario, and its probability is far ahead. If the conflict evolves into a long-term war of attrition, the Strait of Hormuz disruption will persist, and oil prices will remain elevated. This elevation will be structural, not temporary. The current forward price curve clearly underprices this point.

What most people overlook is this: Viewed solely from the oil industry itself, a prolonged war might actually align with U.S. strategic interests. Middle Eastern crude production capacity would be damaged in the conflict, forcing global buyers to turn to North American energy because other alternative sources are scarce. Higher oil prices would also incentivize U.S. producers to expand output—adding rigs, increasing shale oil investment. Looking at the chart below, you’ll see that almost every major historical oil price spike has been followed by an uptick in U.S. production within 12 to 18 months.

The only cost the U.S. truly needs to manage is at the domestic level: how to avoid gasoline prices staying above $4 per gallon for too long, triggering political backlash. This is a “pain point threshold,” not a condition determining whether the war ends.

The “Arithmetic” of Price

With the Strait of Hormuz closed, Brent at $110 is not the ceiling, but merely the starting point. Under our baseline scenario, as long as the Strait remains closed, oil prices will sustain within the $120 to $150 range.

With each passing week, inventories are being drawn down. UBS data shows global inventories had already fallen to the five-year average by the end of March—and that was before the latest round of escalation. Macquarie gives its judgment: if the war drags past June and the Strait remains closed, there’s a 40% probability oil prices could surge to $200.

The front-month spread (the price difference between Brent’s two nearest contracts) has widened to $8.59/barrel. The market is paying about an 8% premium for “delivery one month earlier”—this is 2008-level tightness.

But in 2008, 15% of global supply wasn’t physically blockaded.

Today, almost every model, every price curve, every year-end forecast on Wall Street is built on the same premise: this conflict will end, the Strait of Hormuz will reopen, oil prices will return to normal, and the world will go back to the way it was.

Our judgment is: It won’t.

The back end of the forward curve hasn’t caught up with reality. The market has priced in the “war happening,” but not the “war persisting.” Before Hormuz reopens, every pullback in crude oil is an opportunity. This is our core position, and it will not be hedged.

Oil is the first node. When “ground forces are committed” and there’s no quick victory—when the conflict evolves into the long-term war of attrition we judged from day one—the repricing won’t stop at crude itself. It will transmit sequentially to interest rates, exchange rates, the stock market, and credit markets. That is what happens next.

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