Oil Surges to $126/Barrel on Iran Strait of Hormuz Crisis: EUR/USD and GBP/USD Under Pressure

Brent crude oil (XTI/USD) spiked to a four-year high of $126.41 per barrel during Thursday's trading session before pulling back to $115.98, as the two-month US-Israel military campaign against Iran shows no signs of resolution. The dual blockade of the Strait of Hormuz—with Iranian forces restricting vessel transit and the US Navy besieging Iranian ports—has created an unprecedented supply shock that's reverberating through global forex and commodity markets.

Strait of Hormuz Crisis: 20% of Global Oil Supply at Risk

The Strait of Hormuz, which facilitates the passage of approximately 20 million barrels per day (roughly 20% of global seaborne oil trade), has been effectively closed since late February 2026 when the US and Israel launched Operation Epic Fury against Iran. The conflict has now entered its ninth week with no diplomatic breakthrough in sight.

According to multiple sources, US crude settled 6.95% higher at $106.88 per barrel on Wednesday, April 29, while Brent crude jumped 6.08% to $118.03. By Thursday morning GMT, Brent futures had climbed to $119.94, marking the highest sustained oil prices since March 2022.

The crisis intensified on April 13 when the US Navy initiated a full naval blockade of Iranian ports, creating what analysts are calling a "dual blockade" scenario. At least two Iranian-linked commercial vessels have been seized by US forces, and 39 vessels have been redirected from regional waters in recent weeks. Iran has responded by laying sea mines in the strait and seizing vessels it accuses of violating maritime regulations.

Trump Administration Prepares for "Months-Long Siege"

On Wednesday, April 29, US President Donald Trump met with major oil executives to discuss strategies for maintaining the Iranian port blockade for a potentially extended period. A White House official confirmed Trump "discussed the steps President Trump has taken to alleviate global oil markets and steps we could take to continue the current blockade for months if needed and minimize impact on American consumers."

The Pentagon revealed that the military operation has already cost the US $25 billion, underscoring the scale and duration of the conflict. Trump has publicly urged Tehran to "just give up," while Iranian leadership has threatened "practical action" in response to the blockade.

The news of prolonged conflict triggered fresh selling in risk assets and accelerated crude's rally. IG market analyst Tony Sycamore noted in a Thursday report: "Prospects for any near-term resolution to the Iran conflict or a reopening of the Strait of Hormuz remain dim."

Forex Markets: Crude Oil Now Driving EUR/USD and GBP/USD

The oil shock is fundamentally reshaping EUR/USD and GBP/USD dynamics ahead of critical central bank meetings next week. Analysis from Forex.com published Thursday morning (European time) shows that traditional interest rate differentials have lost their predictive power for these major currency pairs.

"Even where correlations with two-year spreads are positive, they're weak and inconsistent across time horizons, underlining that moves in EUR/USD and GBP/USD are not being driven by rates right now," the Forex.com report stated. Instead, crude oil prices have become the dominant factor, with both pairs exhibiting strong inverse correlations to WTI and Brent benchmarks.

EUR/USD was trading near 1.1663 as of Thursday morning, down approximately 0.17% on the day, while GBP/USD held support around 1.3484 despite multiple attempts by sellers to break lower this week. The pairs are facing pressure from two directions: rising energy costs threaten European growth outlooks, while safe-haven flows favor the US dollar amid geopolitical uncertainty.

The US Dollar Index ($DXY) climbed to 98.86 on April 29, up 0.23% as traders sought safety. However, the dollar's gains have been modest relative to the oil surge, as markets weigh cpi" title="Understanding inflation and CPI in forex">inflation concerns from elevated crude prices against potential economic slowdown risks.

ECB and Bank of England Decisions Looming

Both the European Central Bank (ECB) and the Bank of England (BoE) face rate decisions in early May, with the oil crisis complicating their policy calculus. Elevated energy prices are feeding through to headline inflation metrics across Europe, potentially limiting central banks' ability to cut rates even as growth concerns mount.

The eurozone is particularly vulnerable to oil shocks given its heavy reliance on energy imports. The Asian Development Bank has already slashed its 2026 growth forecast for the Asia Pacific region from 5.1% to 4.7%, citing elevated fuel costs. Similar downgrades are expected for Europe in coming weeks if the Strait of Hormuz remains closed.

UK petrol prices have surged past £1.18 per liter (approximately $4.30 per gallon in US markets), up 27 cents in the past week alone according to AAA motor club data. European diesel prices have risen even more sharply, pressuring transport and manufacturing sectors.

UAE Exits OPEC as Crisis Deepens

Adding another layer of complexity, the United Arab Emirates announced Tuesday it would leave OPEC and the OPEC+ alliance effective May 1, 2026. President Trump welcomed the move, suggesting it could help lower global oil prices by allowing the UAE to increase production independently.

However, analysts remain skeptical of near-term relief. Wood Mackenzie noted that "Gulf countries, including the UAE, will take months to return to pre-war production volumes" even after the strait reopens. More critically, UAE exports—like those of all neighboring producers—are currently bottlenecked by the Iranian blockade of the Strait of Hormuz.

The UAE's exit from OPEC follows years of tension over production quotas, but experts told Al Jazeera the timing may have been accelerated by frustration with the cartel's inability to respond effectively to the current crisis.

Asia Pacific Bearing the Brunt of Price Surge

The Asia Pacific region, which depends heavily on Middle Eastern oil imports, is experiencing severe economic strain. Al Jazeera's Barnaby Lo reported from Seoul: "Almost the entire Asia Pacific region is dependent on oil imports and much of those supplies come from the Middle East. So with the price of Brent crude touching $120 a barrel, there is no doubt that is going to have a huge impact on the region."

"Right now millions if not billions across the region are already suffering from elevated fuel prices as well as higher prices for basic goods and commodities," Lo added. Countries like Japan, South Korea, India, and China—which collectively account for a massive share of global oil demand—face mounting inflationary pressures and potential energy rationing if the crisis extends into summer months.

What Traders Should Watch

Forex traders positioning around the oil crisis should monitor several key developments:

• Diplomatic channels: Any breakthrough in US-Iran negotiations would trigger immediate crude selloffs and risk-on flows, likely benefiting EUR/USD and GBP/USD
• Strait of Hormuz reopening efforts: Pentagon sources suggest the US is preparing contingency plans to seize control of parts of the strait to restore commercial shipping
• ECB and BoE decisions: Both central banks meet in early May; hawkish pivots in response to inflation could support EUR and GBP
• China strategic petroleum reserve: Beijing has been unusually quiet; large-scale reserve releases could ease Asian price pressures
• Alternative supply routes: Reports suggest Iran is exploring Caspian Sea trade routes with Russia to circumvent the blockade

Technical Levels to Watch

EUR/USD: Key support at 1.1686 (76.4% Fibonacci retracement from 2023 lows). A break below this level could accelerate declines toward 1.1500. Resistance lies at 1.1750.

GBP/USD: Holding above 1.3484 support for now, but a sustained oil rally could push Cable toward 1.3300. Upside capped at 1.3600 until geopolitical risks ease.

WTI Crude: Near-term resistance at $110. A break above this psychological level would target $115-$120, matching Brent's recent highs. Support at $100 represents the pre-blockade baseline.

$DXY: Trading range between 98.00 and 100.00. Safe-haven bids support the dollar, but sustained oil rallies could undermine US growth expectations and limit upside.

Bottom Line

The Strait of Hormuz crisis represents the most significant oil supply disruption since the early 1970s embargo, with profound implications for forex markets. The breakdown of traditional interest rate differentials as drivers of EUR/USD and GBP/USD means traders must now closely track crude oil prices and geopolitical developments.

With the conflict entering its third month and no diplomatic solution in sight, volatility is likely to remain elevated across energy and forex markets. The upcoming ECB and BoE meetings will provide critical insight into how European policymakers plan to navigate the twin threats of inflation and growth slowdown.

For now, the message from oil markets is clear: the Iran-US standoff is far from over, and global markets will continue to pay the price for every day the Strait of Hormuz remains closed.