The oil price has been climbing over the past week following heightened geopolitical tensions in the Middle East.
Over the weekend, American jets struck Iran's three main nuclear sites, sending the oil price higher.
Today, crude oil reached US$75.63 per barrel.
The S&P/ASX 200 Index (ASX: XJO) is down 0.9% today at the time of writing.
However, ASX 200 energy stocks are trading higher, as investors foresee higher oil prices. Woodside Energy Group Ltd (ASX: WDS) is up 0.4%, while Santos Ltd (ASX: STO) is trading 0.9% higher.
Why is oil surging?
The oil price has risen around 10% since 13 June.
Since the US' attack, Iran has vowed to retaliate. One way it could do this is through disrupting oil flows.
Markets have become increasingly concerned about potential disruption in the Strait of Hormuz. This site is responsible for transporting around a quarter of the world's oil from key members of the Organization of the Petroleum Exporting Countries (OPEC).
According to Bloomberg data, tankers hauled about 16.5 million barrels of crude and condensate a day through the strait from Saudi Arabia, Iraq, Kuwait, the United Arab Emirates, and Iran in 2024.
If Iran denies access to the giant tankers that transport oil and gas to major energy-consuming regions, oil prices would likely spike substantially.
Can oil hit US$100 this year?
As tensions in the Middle East continue, oil prices are likely to remain elevated.
However, the degree of further price increases will likely depend on Iran's next move.
So far, there has been minimal actual disruption to oil flows. In fact, as reported by Bloomberg, Iranian exports have actually risen since 13 June.
According to Saul Kavonic, an energy analyst at MST Marquee, as reported by Bloomberg:
Much depends on how Iran responds in the coming hours and days — but this could set us on a path toward $100 oil, if Iran responds as they have previously threatened to.
Could this impact interest rates?
Another potential consequence of higher oil prices is the effect on inflation and interest rates.
As reported by the Australian Financial Review, higher oil prices would push inflation higher. This could disrupt expectations that central banks such as the Reserve Bank of Australia (RBA) will continue cutting interest rates.
On 20 May, the RBA cut the official cash rate by 25 basis points to 3.85%. This marked the first time it had been below 4% in two years.
The RBA is due to meet next on 7-8 July.
Investors will be focused on post-meeting commentary for the RBA's view on how higher oil prices could impact monetary policy for the remainder of 2025.
