Editor's Note: While the market still views oil price fluctuations as an "outcome variable" of the war, this article argues that what truly needs to be understood is how the war itself is being priced through oil.

As the Strait of Hormuz remains blocked, the global crude oil supply system is being forcibly restructured—Asian buyers are turning to U.S. crude oil on a large scale, and WTI surpassing Brent marks a structural shift in pricing mechanisms and trade flows. Short-term price differentials can be explained by contracts, but at a deeper level, it's a question of "who can still supply."

The author further points out that the market's key misjudgment lies not in price but in time. The futures curve still implies one premise: the conflict will end in the short term, and supply will recover. But the more likely path is a prolonged war of attrition. This means that high oil prices are no longer a temporary shock but will evolve into a more persistent structural state, with the range potentially shifting upward to $120–150.

Under this framework, crude oil is no longer just a commodity but becomes the "upstream variable" for all assets. Its repricing will transmit layer by layer through interest rates, exchange rates, stock markets, and credit markets.

The market has priced in the occurrence of the war but has not yet priced in its persistence.

Below is the original text:

Trump gave Iran a 10-day deadline. That was a week ago. Yesterday, he reminded everyone again: the countdown has only 48 hours left. Tehran's response: no.

Five weeks ago, on February 28, when U.S. and Israeli warplanes launched airstrikes on Iran, the market's pricing logic was still that of a "surgical" air strike: two weeks, three at most; the Strait of Hormuz would reopen; oil prices would spike and then fall back, and everything would return to normal.

But our judgment at the time was: it won't.

From day one, our core view has been that this war would first escalate and only later possibly de-escalate. The most likely path is the involvement of ground forces, evolving into a long and draining conflict. The duration of the Strait of Hormuz's closure would far exceed the assumptions the market is willing to model. We have provided the full logic in our duration framework, Hormuz pricing model, and war variable analysis.

The core judgment is simple: Iran doesn't need to win; it only needs to raise the cost of the war high enough to force Washington to seek an exit path. And this "exit" will not come with the smooth reopening of the strait.

Five weeks later, every key part of this judgment is being gradually validated. The Strait of Hormuz remains closed. Brent crude settled around $110. The Pentagon is preparing for weeks of ground operations. Trump's war goals have also shifted from "denuclearization" to "bombing them back to the Stone Age," but he still cannot clearly define what "victory" means.

The deployment of ground forces is the escalation inflection point we have been tracking. Marine and airborne troops are already assembling in the theater; this moment is approaching.

But more critical than the next round of airstrikes or the next ultimatum is oil.

Oil is not a byproduct of this war; oil is the core of the war itself. Stock markets, bond markets, crypto markets, the Fed, even your daily food expenses—everything is a downstream variable. As long as you judge oil prices correctly, everything else will unfold accordingly; once you misjudge, all other decisions will lose meaning.

WTI crude prices have just surpassed Brent for the first time since 2022, a change that has already drawn market attention.

Good. It should.

WTI Above Brent: What Everyone Is Asking

On April 2, WTI crude settled at $111.54, while Brent settled at $109.03. WTI's premium over Brent was $2.51, the largest spread since 2009. Just two weeks ago, WTI was still at a significant discount to Brent.

Everyone is asking: What happened? Below is the brief version, and the version closer to reality.

Brief Version: Mismatch in Contract Expiries

WTI's front-month contract is for May delivery, while Brent's front-month contract has rolled to June. In such a tight supply situation, "delivery one month earlier" means a higher price—WTI just happens to have an earlier delivery date.

Adi Imsirovic, an oil trader with 35 years of experience now at Oxford, stated that on top of historically high freight and insurance costs, buyers are willing to pay nearly $30/barrel more for Brent crude delivered one month earlier. In his 35-year career, he has never seen anything like this.

This is a "mechanism-level" explanation—it is correct but incomplete.

Real Version: The Entire Price Curve Is Shifting

The convergence of WTI and Brent is not just a sporadic mismatch in front-month contracts. Bloomberg points out that this phenomenon is clearly visible across multiple contract months, running through the entire forward curve. In other words, the entire price curve is being repriced.

Why? A shift in Asian demand. In late March, Asian refineries locked in about 10 million barrels of U.S. crude for May shipment; the previous week, they also purchased about 8 million barrels. Kpler expects U.S. crude exports to Asia to reach 1.7 million barrels per day in April, up from 1.3 million in March. China, South Korea, Japan, and ExxonMobil's refinery in Singapore are all buying U.S. crude—because it is "the only available supply right now."

The Strait of Hormuz remains closed. Abu Dhabi's benchmark crude Murban—the closest substitute for WTI—has disappeared from the global market. WTI is becoming the world's "marginal pricing oil."

This is not panic buying but a change in flow structure.

Now look at the forward price curve.

This curve is sending a signal: this is just a temporary shock; by Christmas, everything will be back to normal.

Our judgment: This curve is "dreaming."

Three Endings, One Baseline Path

We have already proposed this analytical framework in the "Weekly Signal Playbook." So far, nothing has changed; if anything, the probability of the baseline scenario has only strengthened.

This war will ultimately end in only three ways:

Ending one is almost politically impossible.

Ending two is equally untenable: terrain conditions, troop requirements, and the logic of guerrilla warfare all indicate that this path would be costly and difficult to conclude. Iran's land area is three times that of Iraq, with nearly twice the population, not to mention mountainous terrain that leaves no room for invaders. This is not 2003.

Ending three is the baseline scenario, and its probability is far ahead. If the conflict evolves into a long-term war of attrition, the closure of the Strait of Hormuz will persist, and oil prices will remain high. This high level will be structural, not temporary. The current forward price curve clearly underprices this.

What most people overlook is this: from the perspective of the oil industry itself, a long-term war might actually align with U.S. strategic interests. Middle Eastern crude production capacity would be damaged in the conflict, forcing global buyers to turn to North American energy because other alternative sources are scarce. Higher oil prices would also stimulate U.S. producers to expand output—increasing rigs and investing more in shale oil. Look at the chart below: historically, almost every major oil price spike has been followed by an uptick in U.S. production within 12 to 18 months.

The only cost the U.S. truly needs to manage is domestic: how to avoid gasoline prices staying above $4 per gallon for too long, triggering political backlash. This is a "pain threshold," not a condition for ending the war.

The "Arithmetic" of Price

With the Strait of Hormuz closed, $110 for Brent is not the ceiling but the starting point. Under our baseline scenario, as long as the strait remains closed, oil prices will sustain in the $120 to $150 range.

With each passing week, inventories are being drawn down. UBS data shows global inventories had fallen to the five-year average by the end of March—and that was before the latest round of escalation. Macquarie estimates: if the war drags past June and the strait remains closed, there is a 40% probability oil prices will surge to $200.

The front-month spread (the difference between Brent's two nearest contracts) has widened to $8.59/barrel. The market is paying about an 8% premium for "delivery one month earlier"—this is tension at the 2008 level.

But in 2008, 15% of global supply wasn't physically blocked.

Now, almost every model, every price curve, every year-end prediction on Wall Street is built on the same premise: this conflict will end, the Strait of Hormuz will reopen, oil prices will return to normal, and the world will go back to the way it was.

Our judgment: It won't.

The back end of the forward curve hasn't caught up with reality. The market has priced in the "occurrence of the war" but has not priced in the "persistence of the war." Before Hormuz reopens, every pullback in crude is an opportunity. This is our core position, and we will not hedge it.

Oil is the first node. When "ground forces enter" and there is no quick victory—when the conflict evolves into the long-term war of attrition we judged from day one—repricing will not stop at crude itself but will transmit sequentially to interest rates, exchange rates, stock markets, and credit markets. This is what will happen next.