The ongoing conflict between Israel and Iran has far-reaching consequences that extend well beyond the immediate geopolitical landscape, notably affecting global oil markets. Given the Middle East’s vital role as a leading oil-producing region, heightened tensions between these two nations have introduced significant volatility and uncertainty into oil prices worldwide. The Middle East supplies approximately 30% of the world’s crude oil, with Iran being a major exporter and the Strait of Hormuz serving as a critical chokepoint for nearly 20% of global oil shipments. As a result, any military escalation between Israel and Iran raises fears of supply route disruptions or direct impacts on production facilities, prompting immediate reactions in global markets.

Following Israel’s missile strikes on Iranian nuclear facilities on 13 June 2025, oil prices surged sharply. Brent crude jumped by more than 10% to $75.15 per barrel, while US West Texas Intermediate (WTI) crude rose by approximately 8% to $74 per barrel. The spike was driven by fears of potential blockages in the Strait of Hormuz, through which a substantial share of global oil passes. This surge reflected widespread anxiety over possible supply shortages and the risk of conflict spreading across the region. Market panic escalated further on 22 June 2025 when US Air Force and Navy forces attacked three Iranian nuclear facilities. Many investors anticipated a knee-jerk shift towards safer assets, as the growing threat of a broader regional conflict introduced additional economic risk. Analysts warned that a worst-case scenario involving sustained hostilities could push oil prices beyond $100 per barrel, fuelling global inflation and threatening economic stability.

Despite the initial spike, several factors helped stabilise prices. OPEC+ countries moved to increase output, offsetting potential Iranian supply losses. At the same time, major economies released oil from strategic reserves to ease market pressure. In parallel, diplomatic efforts aimed at de-escalating tensions reassured traders, which caused prices to retreat from their highs.

The announcement of a ceasefire on 23 June 2025 between Israel and Iran triggered a notable drop in oil prices, reflecting reduced concerns over supply chain disruptions. Brent crude futures fell by 6.1% to settle at $67.14 per barrel, while WTI dropped 6.0% to $64.37. These were the lowest closing levels for both benchmarks since early June. However, while the ceasefire has calmed markets, the situation remains fluid. Future developments will continue to influence sentiment and price stability.

Should the conflict escalate or persist, resulting in sanctions or sustained disruption to Iranian exports, prices could fluctuate once more. This would have broad economic implications, including heightened inflation and weaker global growth. Conversely, a lasting peace could help normalise prices and restore confidence in global supply chains. As of 21 July 2025, oil prices have returned to a range of $68 to $70 per barrel amid a fragile ceasefire and easing supply concerns. Brent crude stands at $68.97, with WTI at $66.99. These levels reflect a degree of market relief. However, any further unrest or threat to the Strait of Hormuz could reignite sharp volatility.

The Israel–Iran conflict, compounded by direct US involvement, has played a significant role in recent oil market movements, injecting uncertainty into an already sensitive global supply chain. While the worst-case disruptions have thus far been avoided, the longer-term impact on oil prices will hinge on the region’s stability and coordinated responses by both producers and consumers. Investors and policymakers must remain vigilant as the situation evolves.

Written by Jack Lawlor, Portfolio Administrative Assistant