Financial markets continue to behave as though diplomacy will ultimately prevail in the Middle East. That assumption is becoming increasingly difficult to justify. Over the past 48 hours, the conflict has escalated dramatically following the downing of a US military helicopter off the coast of Oman, triggering direct military exchanges between Washington and Tehran and drawing multiple Gulf states into the confrontation. Yet despite the deteriorating geopolitical backdrop, Brent crude remains well below $100 psychological level. The oil market is still pricing eventual de-escalation. The chart, however, may be starting to challenge that view.
The latest escalation began when a US Army Apache helicopter was shot down near the Strait of Hormuz. US President Donald Trump responded by ordering strikes against Iranian coastal surveillance radars and air defense systems. Iran’s Revolutionary Guard retaliated with large-scale ballistic missile and drone attacks targeting US military assets across the region. Kuwait activated air defenses to intercept aerial threats over key military facilities, while Bahrain sounded air raid sirens as Iranian attacks targeted locations linked to the US Fifth Fleet. The conflict is no longer confined to a direct US-Iran confrontation. Regional actors are increasingly being pulled into the crossfire.
The political backdrop has deteriorated just as rapidly. Trump accused Tehran of deliberately delaying negotiations over a permanent extension of the ceasefire framework and insisted the United States, not Iran, effectively controls the Strait of Hormuz. Iran’s top military command responded by formally declaring the Strait closed to oil tankers and commercial shipping, warning that vessels attempting passage could be fired upon. If enforced, such a move would represent the most serious threat to global energy flows in decades.
Yet Brent crude has not responded in a manner consistent with that risk. Prices remain far below the March peak near $120 and continue to trade as though traders expect some form of diplomatic intervention before inventories become critically depleted. That restraint suggests markets still believe the closure will prove temporary or that military and political pressure will eventually force a reopening of the waterway.
Technically, while Brent crude extended the rebound from this week’s low at 89.57, the rally is so far refrained and capped by 55 4H EMA (now at 94.89). So bias will stay mildly on the downside. However, sustained break of the EMA will put 98.99 cluster resistance in focus (38.2% retracement of 115.30 to 89.57 at 99.40). Decisive break there will complete a double bottom pattern (89.93, 89.57) and indicate near term bullish reversal. That would set up further rise to 61.8% retracement at 105.47 at least.
The importance of that possibility extends well beyond the oil market. A confirmed double bottom would signal that traders are beginning to price a longer-lasting disruption to energy supplies. That would have direct implications for inflation expectations, central bank policy and global risk sentiment. Markets have spent weeks assuming diplomacy will eventually restore stability. Brent’s chart may soon reveal whether that confidence is justified.
