US-Iran-Israel Strikes: Oil Prices Soar on Supply Fears | RTE News

Oil prices are climbing as the fallout from US and Israeli strikes against Iran intensifies, raising concerns about potential disruptions to global crude supply. The strikes, a response to earlier actions targeting Iranian interests, have triggered retaliatory threats and heightened geopolitical risk in a region critical to world energy markets. Brent crude, the international benchmark, approached nearly $85 per barrel on February 28, 2026 – a level not seen since February 2022, coinciding with the initial stages of the Russia-Ukraine war. The immediate driver is fear, but the underlying fundamentals suggest sustained upward pressure is likely.

Iran’s Role in Global Oil Supply

Despite decades of US sanctions, Iran remains a significant oil producer, currently pumping around 3.1 million barrels per day, according to the Organization of the Petroleum Exporting Countries (OPEC). While This represents down from a peak of six million barrels in 1974, when it ranked third globally behind the US and Saudi Arabia, it’s still a substantial volume. Iran holds the world’s third-largest proven crude reserves, giving it considerable strategic importance. Unlike Venezuela, another nation heavily sanctioned by the US, Iran’s oil industry is relatively well-maintained and capable of ramping up production quickly if sanctions were lifted or geopolitical conditions improved.

Crucially, Iranian crude is cheap to extract. Production costs are estimated at just €8.40 per barrel, placing it among the lowest-cost producers globally, alongside Saudi Arabia, Iraq, Kuwait, and the United Arab Emirates. This low cost structure means Iran benefits disproportionately from higher oil prices, bolstering its economy which is heavily reliant on oil revenues.

The Strait of Hormuz: A Critical Chokepoint

The most immediate threat to oil markets stems from the potential for disruption to shipping through the Strait of Hormuz. Iran has repeatedly threatened to block this vital waterway, which connects the Middle East’s oil producers to the rest of the world. In 2024, approximately 20 million barrels of crude oil – nearly 20% of global liquid oil consumption – transited the strait daily, according to the US Energy Information Administration (EIA). The EIA provides detailed data on the Strait of Hormuz and its importance to global energy security.

The strait’s narrow width (around 50 kilometers) and shallow depth (maximum 60 meters) make it particularly vulnerable. Even a perceived threat to security could significantly increase insurance premiums for vessels transiting the area, potentially leading to delays and higher shipping costs. While Saudi Arabia and the UAE possess some bypass infrastructure, their capacity is limited to around 2.6 million barrels per day, according to the EIA, far short of the daily volume currently flowing through the strait.

Retaliation and Regional Instability

Following the US and Israeli strikes, Iran has launched retaliatory missile attacks targeting multiple Gulf states, including Qatar, UAE, Kuwait, Jordan, and Bahrain. These attacks directly targeted US military bases, escalating the conflict. Neighboring countries, including Gulf states, Turkey, and Pakistan, fear Iranian retaliation due to their hosting of US military sites.

Pierre Razoux, director of studies at the Mediterranean Foundation for Strategic Studies, notes that Iran possesses intermediate-range missiles capable of striking “vital points” in these countries, including hydrocarbon hubs, power plants, and desalination facilities. Such attacks could further disrupt oil production and supply chains, exacerbating the existing tensions. Explosions have already been reported in the UAE, Qatar, Bahrain, Kuwait, and Saudi Arabia, as reported by The Week.

Impact on Oil Prices and Global Inflation

The current surge in oil prices poses a significant risk to the global economy, potentially reigniting inflationary pressures. Crude oil reaching almost €85 per barrel could have broader economic consequences, particularly as it comes at a sensitive time for major economies. The situation also carries political implications, potentially impacting the US midterm elections later in the year, as President Trump had promised American voters cheap energy.

The profitability of Iranian oil further complicates the situation. With its low production costs, Iran stands to gain significantly from higher prices, providing a crucial revenue stream for its economy despite ongoing sanctions. China continues to purchase Iranian oil at discounted rates, circumventing some of the restrictions imposed by the US. Current estimates suggest Iran exports between 1.3 and 1.5 million barrels daily, with over 80% destined for Chinese refineries.

What’s Next: Monitoring and Potential Responses

The immediate focus will be on monitoring Iran’s response to the US and Israeli strikes and assessing the potential for further escalation. Gulf states are currently evaluating their options, condemning the attacks and asserting their right to defend their sovereignty under international law. Qatar, Kuwait, and the UAE have all intercepted Iranian missiles, while Bahrain confirmed damage and at least one fatality.

The coming days and weeks will be critical in determining whether the conflict remains contained or spirals into a wider regional war. Military and security agencies across the Gulf are on high alert, preparing for potential further escalation. The situation remains highly fluid and unpredictable, with significant implications for global oil markets and the broader economy. The potential for further disruption to oil supplies, coupled with the risk of broader regional instability, will likely keep oil prices elevated in the near term.