Global oil markets have reacted sharply to escalating tensions in the Middle East as the United States and Israel continue their assault on Iran, triggering fears of a prolonged disruption in energy supplies.

Although the immediate impact in Nepal has not yet been fully visible, officials at the state-owned Nepal Oil Corporation (NOC) say they are closely monitoring the situation and remain cautious about potential fallout.

After oil tanker traffic through the Strait of Hormuz came to a halt, benchmark Brent crude prices surged about 6 percent to over $77 per barrel in the global market. Prices initially spiked as high as $82 per barrel, the highest level since January 2025. On Tuesday alone, crude oil prices rose by 5.57 percent to reach $80.40 in a single day.

For oil-importing countries like Nepal, higher global fuel prices directly increase production costs, which are eventually passed on to consumers. The likely result is a combination of rising inflation and slower economic growth, a scenario policymakers have long feared.

While Nepal’s immediate fuel supply appears secure, the unfolding geopolitical crisis shows the country’s vulnerability to global energy shocks. Any prolonged closure or disruption in the Strait of Hormuz could reverberate far beyond the Middle East, with ripple effects reaching even landlocked economies like Nepal.

The Nepal Oil Corporation, which imports fuel from India, has expressed optimism that there will be no immediate disruption in supply despite mounting tensions in the Middle East, at least for the short term. Officials estimate that the five-day holiday beginning Wednesday could temporarily reduce demand, though panic buying has already begun.

Long queues of motorists have been seen at several fuel stations across the country.

Meanwhile, cooking gas supplies, which have been under pressure for the past month, have yet to fully normalise.

Manoj Kumar Thakur, deputy director of the corporation, said the agency remains confident that there would not be shortages in the market.

“As per discussions with the Indian Oil Corporation [IOC], there is a stock of crude oil sufficient for two to three months, though processed fuel stocks could last only four to five days,” Thakur said.

“IOC has also confirmed that there will be no disturbance in supply to Nepal.”

India’s energy security, however, is also under scrutiny. Russia remains India’s largest source of crude oil, followed by Saudi Arabia and Iraq. According to Indian media reports, India’s most immediate vulnerability lies in liquefied petroleum gas (LPG). The country imports nearly two-thirds of its LPG requirements, with 85 to 90 percent sourced from Gulf nations.

Stock levels, including cargoes already en route, are estimated to last less than two weeks if fresh supplies are cut off. State-run refiners — IOC, Bharat Petroleum Corporation Limited and Hindustan Petroleum Corporation Limited — have reportedly begun boosting LPG output at select refineries.

Indian authorities are also considering targeted rationing, particularly for consumers who have access to alternative fuels.

The current crisis erupted after the United States and Israel launched strikes against Iran last Saturday following weeks of military buildup and escalating threats from US President Donald Trump. US strikes reportedly targeted military installations in Iran, and killed Iran’s Supreme Leader Ayatollah Ali Khamenei.

Iran retaliated swiftly, firing ballistic missiles at Israel and at US facilities across the Middle East, including in Bahrain, Kuwait, Qatar, the United Arab Emirates, Jordan, Saudi Arabia and Cyprus, as well as at ships transiting the Strait of Hormuz.

International media reports suggest that the deepening Middle East conflict could significantly disrupt the global economy through sustained increases in oil prices. Financial institutions are already projecting worst-case scenarios.

JPMorgan Chase has forecast that Brent crude could climb to $120 per barrel if a full-scale regional war leads to prolonged disruption of oil flows through the Strait of Hormuz.

The strait, which lies between the Persian Gulf and the Gulf of Oman, provides the only sea passage from the Persian Gulf to the open ocean. Approximately one-fifth of the world’s oil supply—around 20 million barrels per day—passes through this narrow waterway, making it the most critical energy chokepoint globally.

Recent reports indicate a de facto closure, with traffic dropping by 70 percent as major shipping lines suspend transit amid safety concerns and rising war-risk insurance premiums.

In Nepal, officials say it is still too early to determine how much domestic fuel prices might rise. However, the Nepal Oil Corporation has indicated that it could draw on its Price Stabilisation Fund if international prices increase sharply.

“We have nearly Rs20 billion in our reserve fund to cushion the shock,” said Thakur.

The Price Stabilisation Fund was established in 2014 to protect consumers from volatile international petroleum prices by subsidising costs.

The government initially provided Rs500 million as seed capital, while the corporation contributes 1 percent of its sales revenue to the fund. The Indian Oil Corporation reviews fuel prices every 15 days based on international crude rates and sends revised pricing to Nepal accordingly.

According to Thakur, daily petrol demand in the Kathmandu valley stands at around 800 kilolitres. However, observing increased demand and the upcoming election, the corporation has nearly doubled distribution in recent days.

On Sunday, 1,650 kilolitres of petrol were distributed in the Valley, followed by 1,320 kilolitres on Monday and 1,650 kilolitres on Tuesday. Distribution is expected to remain at similar levels on Wednesday.

“So there is no panic buying situation,” Thakur claimed, despite visible queues at several fuel stations.

Diesel supplies are being adjusted in line with rising demand. The corporation has also requested both government-run and private petroleum pumps to remain open on election day Thursday to avoid any supply disruption.