Oil prices have climbed sharply since the Middle East conflict began, driven by persistent supply constraints. The closure of the Strait of Hormuz and damage to critical infrastructure continue to threaten supply and support elevated prices.

US benchmark West Texas Intermediate (WTI) crude has risen 7.68% over the past five days and 34.22% over the past month, as per OilPrice.com. Even if tensions begin to ease, oil prices are likely to remain firm, as repairs to key infrastructure may take time, limiting near-term production capacity. This extended supply tightness could support elevated oil prices well beyond the end of the conflict.

Middle East Crisis Continues to Rattle Energy Markets

As the Middle East conflict drags on and diplomatic progress between Washington and Tehran remains unclear, oil prices are seeing sustained upward pressure. President Donald Trump signaled continued U.S. attacks on Iran without outlining a clear endgame, amplifying investor fears of sustained supply disruptions, fueling a sharp rise in oil prices, as quoted on Reuters.

The absence of a clear resolution timeline is reinforcing geopolitical risk premiums, supporting elevated crude prices. Uncertainty over the timeline for the conflict in Iran is likely to keep oil prices volatile, as rising geopolitical tensions and global security concerns add upward pressure.

Nevertheless, structural issues, such as supply constraints and damage to regional energy infrastructure, are expected to play an even larger role in supporting oil prices.

April to See Rising Oil Supply Pressures

According to Fatih Birol, executive director of the International Energy Agency (IEA), the energy crisis triggered by the Middle East Conflict is the most severe in history, with oil supply disruptions set to deepen further in April after already pushing prices significantly higher.

Speaking with Nicolai Tangen, CEO of Norges Bank Investment Management, on the “In Good Company” podcast, noted that April is likely to be significantly worse than March, with oil supply losses expected to be twice as large, as quoted on a CNBC article.

The head of IEA explained that in March, some cargoes had already transited the Strait of Hormuz before the conflict began and continued to arrive at ports, sustaining supply. However, in April, that buffer is expected to disappear, leaving little to no incoming shipments.

As quoted on the abovementioned article, Birol said the crisis has already eclipsed past energy shocks, with supply losses now exceeding those seen during the 1970s crises and the 2022 Russia-Ukraine disruption. Additionally, he also stated that the IEA is considering another release of strategic oil reserves as the Middle East conflict continues but warned it won’t fix the deeper energy market crunch.

How Close Are We to $200 Oil?

As per CNN, analysts warn that oil prices may rise further in the summer if the Strait of Hormuz remains shut, as quoted on Yahoo Finance. A prolonged conflict, coupled with continued disruption to the key shipping route, could prove highly costly for global markets.

The post-conflict environment remains highly uncertain, particularly regarding the operational status of the Strait of Hormuz, which could keep risk premiums embedded in oil prices.

According to Macquarie Group, as quoted on the abovementioned article, a prolonged conflict lasting through June could push oil prices above $200 per barrel, at least temporarily. Per Macquarie’s global oil and gas strategist, Vikas Dwivedi, the odds of $200 oil have dropped to 20% from 40% but it remains a risk, especially if Hormuz stays closed, a scenario Trump has hinted at.

Although $200 oil may seem like a tail-risk scenario, analysts believe it reflects the severity of ongoing supply disruptions. According to estimates by Bank of America, as quoted on the abovementioned Yahoo Finance article, oil prices could average around $100 per barrel for the rest of the year, with upside risks tied to ongoing disruptions in the Strait of Hormuz.

In a more severe scenario involving prolonged supply losses, the bank sees prices potentially exceeding $150 per barrel this quarter.

Energy ETFs Worth Watching

Oil markets could remain structurally tight, keeping long-term oil prices elevated well beyond the resolution of the conflict. This backdrop creates a compelling case for investors to consider ETFs that could benefit from elevated oil prices in the post-Middle East conflict environment. That said, maintaining a long-term investment horizon remains crucial.

Investors can consider State Street Energy Select Sector SPDR ETF (XLE Quick QuoteXLE - Free Report) , Vanguard Energy ETF (VDE Quick QuoteVDE - Free Report) , State Street SPDR S&P Oil & Gas Exploration & Production ETF (XOP Quick QuoteXOP - Free Report) , iShares Global Energy ETF (IXC Quick QuoteIXC - Free Report) and iShares U.S. Energy ETF (IYE Quick QuoteIYE - Free Report) .

With a one-month average trading volume of 70.75 million shares, XLE is the most liquid option, offering investors easier entry and exit while minimizing the risks of significant price fluctuations, ideal for active trading strategies.

XLE has gathered an asset base of $44.09 billion, with the largest asset base among the other options. Regarding charging annual fees, XLE is the cheapest option, charging 0.08%, suitable for long-term investing.

On average, the aforementioned funds have gained 9.51% over the past month and 23.91% so far this year.