Oil Prices Surge as Middle East Tensions Escalate

Traders aggressively targeted $80 West Texas Intermediate (WTI) crude oil call options on Friday, with 33,411 August-2025 contracts traded, the highest volume since January, within a total of 681,000 contracts, per CME Group data. This surge reflects mounting fears of oil price spikes driven by Middle East unrest, particularly after Israeli airstrikes on Iran and threats from an Iranian MP to close the Strait of Hormuz—a critical route for 20% of global oil trade. The last comparable trading peak was January 10, with 17,030 February-2025 $80 call options traded, underscoring the market’s heightened anxiety over supply risks.

Oil prices leapt 7% on Friday (13th June 2025), with WTI closing at $72.98 per barrel, up $4.94 or 7.62%, hitting a high of $77.62—the highest since January 21. According to the Federal Reserve’s FRBUS model, a $10 oil price increase could reduce U.S. GDP by 0.4% due to higher production and transportation costs, curbing consumer spending and business investment. Inflation could rise by 0.2% initially, with an additional 0.15% from second-round effects as businesses pass costs to consumers and wages rise. Recent market sentiment, including posts on X, suggests Friday’s rally eliminates chances of a Federal Reserve rate cut on June 18, 2025, with April’s 2.3% inflation rate potentially the decade’s lowest, drawing parallels to Israel’s 1980s CPI surge.

The oil price surge exacerbates stagflation risks—high inflation paired with sluggish growth—compounded by tariffs and immigration curbs. Tariffs inflate goods prices and hinder trade, while immigration restrictions shrink labor supply, pushing wages up and raising business costs, potentially slowing job growth. The Federal Reserve faces a bind: raising interest rates to curb inflation risks worsening the slowdown, while cutting rates could fuel further price rises. With the FOMC meeting looming, the Fed’s focus—whether on inflation or growth—will shape the U.S. economy’s trajectory. The Strait of Hormuz remains a focal point, as any closure could push oil prices to $120 per barrel, per JPMorgan, intensifying global inflationary pressures.