How Israel-Iran conflict is likely to inflate global oil prices? EXPLAINED

The conflict raging between Israel and Iran on Sunday, 22 June 2025, took an escalating turn as the US entered the war after conducting an airstrike on three nuclear sites of Iran. These heightened tensions are likely to inflate the global oil prices in case Tehran decides to retaliate against America's move.

US President Donald Trump announced that America had destroyed three nuclear facilities in Iran, namely Fordow, Natanz, and Esfahan, through a coordinated airstrike amid the Israel-Iran conflict. 

Trump called out Iran and said that there will either be peace or tragedy for the Middle Eastern country, as the Western nation disclosed its preparedness to take out more targets in Iran.

“There will be either peace or there will be tragedy for Iran, far greater than we have witnessed over the last eight days,” Trump told reporters at a late-night media address on Saturday, 21 June 2025.

Trump's move to carry out airstrikes in Iran has automatically involved the Western nation in the raging conflict in the Middle East.

“All planes are now outside of Iran's space. A full payload of bombs was dropped on the primary site, Fordow. All planes are safely on their way home,” he said in a social media post. 

Importance of the Strait of Hormuz

As the tensions and uncertainties escalate in the global economy, investors around the world are afraid of Iran's retaliatory move against Israel and the US.

The Strait of Hormuz is a strategically important global trade passage for crude oil imports and exports out of the Middle East. It connects the Gulf of Oman and the Arabian Sea with the Persian Gulf.

According to earlier reports, this area witnesses nearly a quarter of the world's oil trade, making it a very sensitive region near a volatile conflict area of Iran.

Concerns of investors and commodity traders around the world are rising as people expect Iran to block the region and potentially create disruptions in the shipping passage.

Even though there has been no advancement from Iran's side on its threats to block the international maritime passageway, this sentiment of uncertainty is driving up the oil prices. 

JP Morgan's take on Oil trade risk

JP Morgan, in an industry report, mentioned how the oil prices gained 3.6 per cent, crossing $78 per barrel for the first time since January amid the fears of the escalating situation in the Middle East.

“While markets are on edge, it seems like crude prices have some more room to rise before they start to cause real friction for the U.S. economy,” said the investment giant in its report released on 20 June 2025, before US carried out the hit against Iran's nuclear sites.

According to an Economic Times report citing the investment bank, oil prices are expected to rise to as high as $120 per barrel if geopolitical tensions further escalate amid the ongoing conflict.

The current oil prices show a 7 per cent chance of a worst-case economic scenario in which the impact will go beyond the reduced Iran exports, according to the news portal's report. 

Oil Price Effect

Crude oil futures for both Brent and the West Texas Intermediate (WTI) closed lower after Friday's commodity market session. Investors' focus on Monday, 23 June 2025, will remain on how much the commodity takes a hit due to the increasing uncertainty in the market.

The Brent futures of the September 2025 contract closed 2.33 per cent lower at $75.48 after the commodity market session on 21 June 2025. The WTI futures for the August 2025 contract also closed 0.28 per cent lower at $74.93 after the commodity market session into Saturday.

Bloomberg Intelligence, in a research note, said that it is raising the near-term forecast for Brent crude to the $80-$90 range. “We are raising our near-term Brent forecast to the $80–$90 range, with $100-plus oil increasingly likely given the elevated risk of Iran closing the Strait of Hormuz,” according to the research report cited by the news portal Moneycontrol.

In June, crude oil prices jumped 24 per cent to reach near their $75 per barrel range as investors fear this rise may continue, fueled by Middle East tensions. 

Will this result in a potential regime change in Iran?

If Iran's regime changes during the ongoing conflict, removing Ali Khamenei from power would have a greater impact on global oil prices, as Iran is the third-largest oil producer amongst the OPEC nations.

According to the news portal CNBC's report, citing Rapidan Energy Group's CEO, Scott Modell, said that a potential regime change will be bigger than the 2011 Libyan revolution.

“We would need to see some strong indicators that the state is coming to a halt, that regime change is starting to look real before the market would really start pricing in three plus million barrels a day going offline,” said Modell, according to the news portal's report. 

Puri Downplays Hormuz Strait Closure

India reportedly prepared itself for the potential fallout of skyrocketing global oil prices due to any disruption caused by the closure of the Strait of Hormuz.

“We had diversified the sources of supply. Out of the 5.5 million barrels of crude oil that India consumes daily, about 1.5-2 million come through the Straits of Hormuz. We import roughly 4 million barrels through other routes,” said Union Oil Minister Hardeep Singh Puri, reported the news agency ANI.

However, he also highlighted that when the market opens on Monday, 23 June 2025, the consequence of the US airstrike on Iran will be seen in the commodity oil.

“It's very difficult to speculate the price factor. The oil price for a long time was between 65 and 70. Then it was between 70 and 75. Today is a Sunday. When the markets open tomorrow, the consequences of the closure of the Strait of Hormuz will be factored in,” he said.

Puri also highlighted that there is “enough oil is available in the global markets” and said that the oil suppliers will also be interested in keeping the oil flowing due to the revenues that are attached to it from global trade.

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