When it comes to Israel’s end-game and Iran’s strategic response, the geopolitical implications for oil are far-reaching and could shape not only regional stability but also global energy prices in the coming months.
The Strait of Hormuz: A Critical Chokepoint
Iran controls access to the Strait of Hormuz, through which about 20% of the world’s oil supply passes daily. If tensions escalate and Iran chooses to retaliate by disrupting this route—even partially—oil prices could spike sharply, possibly by 20–30% or more in a short timeframe. This is the most direct and impactful pressure point Iran holds. Even the threat of closure can cause futures markets to react with fear-driven buying.
Market implication: Prices could jump well above $90–$100/barrel if tankers are attacked or blocked, and insurance premiums on shipments would soar. Supply chains would be rerouted, leading to delays and global inflationary pressure.
Israel’s End-Game: Strategic Containment or Regime Pressure
If Israel’s goal is containment—such as destroying missile sites or nuclear facilities—without seeking full regime change, then oil market disruptions may be sharp but temporary. Markets would eventually price in a return to “managed tension,” as seen in past episodes.
However, if Israel’s campaign becomes more expansive, including deep strikes into Iranian infrastructure or cyberattacks affecting oil production, Iran’s response could be less restrained. They may retaliate via proxies across the region (Yemen, Iraq, Lebanon), attacking oil fields or refineries in Saudi Arabia or the UAE—both vital suppliers.
Market implication: Any damage to Gulf energy infrastructure (like the 2019 Saudi Aramco drone attack) could see prices jump $10–20 per barrel overnight.
Iran’s Oil Exports: Sanctions Evasion at Risk
Iran has been increasing crude exports to China and Asia despite U.S. sanctions. If the situation worsens, the U.S. may tighten secondary sanctions, pressuring buyers like China and India to cut imports. Reduced Iranian supply would tighten the global market, especially if OPEC+ maintains current production levels.
Market implication: A gradual removal of ~1 million barrels/day of Iranian crude could support Brent above $85–90, particularly if demand remains steady and inventories fall.
Proxy Conflicts and Energy Infrastructure Risk
Iran may avoid direct engagement but activate regional militias and non-state actors. Disruptions could occur in key corridors:
- Red Sea (via Houthis)
- Iraq’s Kirkuk pipeline
- Lebanon/Hezbollah tensions spilling into the Mediterranean
Each event would increase geopolitical risk premiums in oil markets, prompting traders to price in worst-case scenarios, even if actual supply is unaffected.
Long-Term Scenario: Repricing of Geopolitical Risk
If this conflict becomes a “new normal” like the post-2011 Syrian crisis or Yemen war, oil may enter a period of structurally higher prices due to a geopolitical risk premium. Markets would shift away from pricing oil on pure supply-demand data to a more sentiment-driven model—similar to how gold behaves during prolonged uncertainty.
Market implication: Oil could stabilize at a higher floor, say $80–90 Brent, with $100+ spikes during periods of direct confrontation or major headlines.
Conclusion
The direction oil prices take depends less on any single headline and more on how far Israel pushes, and how Iran chooses to respond. A calibrated response may keep prices volatile but contained. But if miscalculation or escalation leads to infrastructure attacks or supply chain disruptions, then oil could enter a new pricing regime—with volatility, supply uncertainty, and strategic reserves playing a central role in global energy dynamics.
UPDATE – As of June 17, 2025, the conflict between Israel and Iran has seen significant developments with implications for regional stability and global oil markets:
Escalation of Strikes: Israel and Iran have continued to exchange intense missile strikes. Israel targeted Iranian energy facilities, including an oil storage facility and a gas refinery, while Iran retaliated with ballistic missiles and drones, causing significant damage and casualties in Israel. These strikes have raised concerns about the conflict escalating into a broader regional war.
The U.S. response to the Israel-Iran conflict has become more assertive and multifaceted. President Donald Trump has taken a hardline stance, calling for Iran’s “unconditional surrender” and warning residents of Tehran to “immediately evacuate,” signaling a severe escalation in rhetoric. Trump denied that his early departure from the G7 summit was related to ceasefire talks, stating the situation was “much bigger than that,” and hinted at undisclosed plans beyond a ceasefire. In response, risk assets fell whilst oil prices surged again after a pause on Monday.
Militarily, the U.S. has bolstered its presence in the Middle East by deploying additional warplanes and the aircraft carrier USS Nimitz to the region. Defense Secretary Pete Hegseth emphasized a “defensive posture” aimed at protecting American personnel—about 40,000 troops currently stationed there—while warning Iran against any attacks on U.S. forces, which would provoke a strong retaliation. The Pentagon has not participated in Israel’s strikes but is prepared for a prolonged conflict, as indicated by the transfer of refueling aircraft to sustain air operations.
Politically, the Trump administration has provided intelligence support to Israel’s operations but has not directly engaged militarily. Trump’s advisers considered a range of options from non-intervention to full military involvement aimed at regime change in Iran but settled on pressuring Tehran for immediate concessions at the negotiating table while supporting Israel’s offensive1. Meanwhile, some U.S. lawmakers have introduced legislation to limit Trump’s unilateral authority to strike Iran, reflecting domestic caution about deeper U.S. involvement.
On the diplomatic front, G7 leaders, including Trump before his departure, called for Iran never to acquire nuclear weapons and urged a reduction of hostilities in the Middle East, including a ceasefire in Gaza. However, Trump publicly dismissed ceasefire efforts led by other leaders, underscoring the complexity and volatility of the diplomatic landscape.
In summary, the U.S. is intensifying military readiness and political pressure on Iran, supporting Israel’s campaign indirectly, while preparing for a potentially extended conflict, all amid heightened diplomatic tensions and domestic debate over the scope of U.S. involvement.
Overall, the situation remains highly volatile, with significant implications for regional security and global energy markets.