Mon, Mar 16, 2026|Sean Michael Cummings

Oil's Fear Premium Won't Last Long

Oil prices just made some of the biggest swings in recent memory...

From February 26 to March 9, the commodity surged 45%. Then on March 10, it fell 12% in a single trading day. And it has already rallied double digits since then.

Of course, all this volatility has a root cause.

The war in Iran has made shipping dangerous in the Middle East. We've already seen strikes on oil tankers and container ships in the Persian Gulf. The market expects oil supply will be pinched for the remainder of the war.

That's why oil prices are going haywire.

It's a shock to the market... But it's not unprecedented. And history shows us that when oil prices spike like this, the premium doesn't last long.

Let me explain...

Oil Markets Have Seen This Before

In 1984, Iraq attacked Kharg Island, one of Iran's key oil terminals...

The attack was part of a string of oil-related strikes in the Persian Gulf. And it caused Iran to effectively shut the Strait of Hormuz off to Iraq and its allies.

This channel through the Persian Gulf carries about one-fifth of the world's oil supply. Take a look...

At the time, the Iranian navy lined the bay with mines and sank Kuwaiti tankers. That led to a big spike in oil prices through 1986.

But then, the U.S. Navy busted the blockade...

U.S. military boats guided Kuwaiti vessels through the strait, starting in 1987. The initiative was called "Operation Earnest Will." And oil prices rapidly retreated. Take a look...

The operation effectively circumvented the blockade. And oil prices collapsed as soon as it started.

We saw a similar round trip in oil prices during the Gulf War...

When Iraq invaded Kuwait in August 1990, the international response was quick. U.N. Security Council troops poured into the Middle East, liberating Kuwait after just six months.

Like Operation Earnest Will, the intervention brought a quick end to soaring oil prices. Take a look...

In both cases, the market priced a lot of fear into oil. But it didn't take long for that fear to dissipate – taking the premium with it.

Today, we're seeing a similar pattern...

After America and Israel's military strikes, Iran's Islamic Revolutionary Guard Corps has declared the Strait of Hormuz under blockade.

Iran is once again sinking ships that attempt to cross the strait. And oil prices have soared since the conflict began.

This passageway has a long history in geopolitics... But that same history tells us that we shouldn't expect today's oil spike to last.

Now, the roller-coaster ride likely isn't over yet. So I would discourage investors from trying to trade against this move. This isn't the time to take big risks.

But don't panic either... History shows this volatility could be shorter than expected.

Good investing,

Sean Michael Cummings

Oil's Fear Premium Won't Last Long

Oil Markets Have Seen This Before

Further Reading