Iran Conflict: Oil Prices to Surge, Global Economy at Risk
Escalating tensions in the Middle East, triggered by coordinated strikes by the United States and Israel against Iranian interests, are poised to send oil prices sharply higher and could destabilize the global economy if the conflict persists. The oil market opened at 23:00 GMT on Sunday (18:00 EST) and analysts anticipate a significant surge in prices.
“I expect oil prices to trade between $85 and $90” on Monday, stated Amena Bakr, a specialist in OPEC+ and the Middle East at Kpler. Kpler is a provider of data and analytics on commodity flows.
This represents a substantial jump from the Brent crude benchmark, which had already factored in a geopolitical risk premium, closing at over $72 on Friday, a considerable increase from $61 at the start of the year. Brent crude is the major benchmark price for purchases of oil worldwide.
Ripple Effects at the Pump
The anticipated price increase will likely translate to higher gasoline prices for consumers. In the United States, experts estimate the price per gallon could rise from approximately $3.00 currently to between $3.10 and $3.15 in the coming weeks.
The conflict has already begun to disrupt maritime transport through the Strait of Hormuz, a critical chokepoint for global oil supplies. Approximately 20 million barrels per day – representing 20% of global oil consumption – transit the strait. The recent attacks have effectively halted tanker traffic in the area. While some Chinese and Iranian vessels have reportedly passed through, according to Kpler, the situation is akin to a near-closure.
Insurance costs are becoming prohibitive, and major shipping companies have already confirmed they are suspending passage through the strait. This disruption adds a significant layer of complexity to global energy supply chains.
A Vulnerability for the Trump Administration
“Alternative infrastructure in the Middle East can be used to circumvent flows through the strait, but the net impact remains an effective loss of 8 to 10 million barrels of crude oil supply,” noted Jorge Leon, an analyst at Rystad Energy, in a report released the day prior. Rystad Energy is an independent energy research and consultancy firm.
While importing countries hold strategic reserves – OECD members are required to maintain 90 days of oil stocks – prices exceeding $100 per barrel are not out of the question. If the Strait of Hormuz remains blocked, “no matter how much oil is in strategic reserves,” the loss of volumes exported through this crucial passage “is simply too large,” Bakr emphasized.
When questioned by Fox News about potential concerns regarding rising oil prices, President Trump responded, “I’m not worried about anything… if we didn’t do this, they would have had a nuclear weapon in less than two weeks.”
However, “Trump’s Achilles’ heel is high oil prices,” according to Michelle Brouhard, similarly an analyst at Kpler. She suggests Iran may seek to maintain elevated crude prices to pressure Trump, who promised his electorate lower prices, as the United States prepares for the midterm elections later this year.
Beyond Crude: Natural Gas and Broader Economic Impacts
The price of natural gas is also expected to rise on Monday, as Qatar is a key exporter of liquefied natural gas (LNG), further exacerbating inflationary risks. The interconnectedness of energy markets means that disruptions in one sector quickly ripple through others.
Rising hydrocarbon prices are unwelcome news for the global economy. The last time crude oil prices exceeded $100 was at the onset of the war in Ukraine. Gas prices also surged, contributing significantly to a prolonged period of rising prices. Le Devoir’s coverage of the Ukraine conflict provides further context on the energy market impacts of that war.
Increased prices at the pump, higher energy costs, increased shipping costs, and reduced revenue for the airline industry are all potential consequences of the conflict. “It can have a deleterious impact on growth,” explained Eric Dor, a professor at IESEG School of Management, to AFP. “If it’s for 3 days, it’s not serious, but if it’s prolonged, then yes, it will be an additional recessionary effect.”
While the defense sector could benefit from the increased tensions, Dor anticipates “declines” in other sectors, particularly “the airline industry, the shipping industry, and tourism.”
The Strategic Calculus and Potential Escalation
The situation is further complicated by the potential for escalation. The U.S. Military presence in the region is likely to attempt to prevent Iran from maintaining the closure of the Strait of Hormuz. Conversely, Iran could utilize its drones and missiles to target production facilities in neighboring countries. This creates a volatile and unpredictable security environment.
The attacks by Israel and the United States, as reported by Euronews, have fundamentally altered the strategic landscape. The death of Khamenei, as reported in the same article, adds another layer of uncertainty to the situation. Yossi Kuperwasser, a former head of intelligence for the Israel Defense Forces, predicts that Iran will continue to launch missiles and attempt to involve its allies in the conflict.
The situation remains fluid and highly sensitive. Monitoring developments in the Strait of Hormuz, oil market reactions, and diplomatic efforts will be crucial in the coming days and weeks. The potential for further escalation and the resulting economic consequences demand close attention from businesses and policymakers alike.
Looking Ahead: The immediate focus will be on assessing the extent of the disruption to oil flows through the Strait of Hormuz and the response from major energy consumers. The coming days will reveal whether diplomatic channels can be opened to de-escalate the conflict, or if the situation will continue to deteriorate, pushing oil prices even higher and increasing the risk of a global economic slowdown.