Oil prices experienced a significant surge on Tuesday, climbing nearly 2% to reach a two-week high. This upward trend was primarily fuelled by growing anxieties over potential oil supply disruptions stemming from US sanctions on Russian and Iranian oil exports, overshadowing concerns about a global economic slowdown triggered by escalating trade tensions.  

The recent rally in oil prices is directly linked to ongoing US sanctions targeting Russian and Iranian oil exports. Sanctions imposed on Russian tankers, producers, and insurers have created significant disruptions in Russian oil shipments, particularly affecting key buyers such as China and India. Despite these challenges, Russian officials maintain a positive outlook, asserting that sanctions will not hinder their oil trade relations with India, one of the world's largest crude importers. Simultaneously, US sanctions on Iranian oil exports to China are intensifying, adding further complexity to the global oil supply picture.  

The former President's intensified "maximum pressure" campaign on Iran's oil exports has introduced additional uncertainty into the global market. These combined supply disruptions have provided strong support for oil prices, with Asian crude grades remaining firm as a result.  

However, the gains in oil prices have been tempered by apprehensions regarding the potential ramifications of a global trade war. New tariffs imposed on steel and aluminium imports have drawn sharp criticism and threats of retaliation from key trading partners, including Mexico, Canada, and the European Union. Many economists express concern that these escalating tariffs could negatively impact global economic growth, especially in energy-intensive sectors like manufacturing and transportation.  

Despite the prevailing trade tensions, there are indications that OPEC+ may persist with its strategy of gradually increasing oil output. The oil cartel and its allies, including Russia, have signalled their intention to maintain this policy, which is expected to ensure a relatively stable oil supply in the near term. Notably, Saudi Arabia's oil exports to China are projected to decline in March due to the kingdom's decision to raise prices to their highest point in over two years.  

The Federal Reserve's stance on interest rates remains a crucial factor influencing oil market dynamics. Chairman Jerome Powell has reiterated the Fed's focus on responding to the economic repercussions of trade policies, rather than making decisions solely based on tariffs. While some economists anticipate the Fed to refrain from interest rate cuts in the short term, the potential for higher borrowing costs could ultimately dampen oil demand, particularly if inflation continues to rise because of tariff-related price increases.  

Looking ahead, both global oil production and consumption are poised to reach record highs in the next two years. The US Energy Information Administration (EIA) forecasts substantial growth in oil output, driven primarily by increases in the US and other key producing nations. This anticipated supply increase is expected to meet rising demand, which should contribute to price stabilization over the longer term, despite ongoing geopolitical tensions and trade uncertainties.