Oil seems resilient. Why energy markets should still be on edge.

Operation Midnight Hammer targeted three of Iran’s key nuclear sites with bunker-busting bombs and Tomahawk missiles on Saturday. President Donald Trump called the attack a “spectacular military success." But initial assessments suggest the sites weren’t fully destroyed. Iran also appears to have relocated some sensitive materials in advance. In other words, the dramatic escalation that has pushed the U.S. and Iran into open confrontation is still unfolding.

The oil market is responding by factoring in a higher geopolitical risk premium. Prices rose higher—briefly breaking $80 before falling below $70 a barrel on Monday after Iran fired missiles at a U.S. airbase in Qatar. Traders were apparently relieved that Iran didn’t immediately attempt to close the Strait of Hormuz.

This is no super-spike. Oil’s low-key reaction is partly due to weak global demand. China’s recovery from Covid-19 lockdowns has been underwhelming, and European and U.S. growth remains sluggish.

Supply remains strong, too. The Organization of the Petroleum Exporting Countries’ recently agreed upon production increases have added a cushion. Some 411,000 barrels a day will come on in July, with more expected before November. Additionally, Iran’s oil exports haven’t stopped, and its strategic reserves remain sufficient to smooth short-term disruption. China, the largest importer of Iranian crude, has hedged its exposure to supply disruption; it has 1.18 billion barrels stockpiled.

But it would be a mistake to focus only on today’s trading floors or this week’s price ticks. The broader geopolitical risk premium is rising. Markets may not fully price that in immediately—but the risks are cumulative and persistent. Iran’s response could create rolling instability across energy and shipping markets. That is especially true if Iran reaches for many of the unconventional weapons in its arsenal, such as cyberattacks and low-grade interference with maritime shipping.

The U.S. is urging Iran to restrain itself. But Tehran will find it unpalatable to negotiate from a position of weakness without its prior nuclear leverage. Monday’s round of military retaliation against U.S. forces shows that Iran may be willing to risk a full-scale war with the U.S. The damage from that attack was minimal, but it may prompt further rounds of retaliation from the U.S., and the situation will remain volatile.

Tehran and its allies have both conventional and unconventional tools to fight back, from missiles and drones to cyberwarfare. Precedent suggests Iran will likely retaliate asymmetrically, which could include indirect attacks on U.S. assets, interests, or allies.

Iran’s Strait of Hormuz remains the most strategically vulnerable chokepoint in global energy markets, for oil and LNG. Roughly one-third of all seaborne oil and 20% of LNG passes through it daily. Goldman Sachs noted this week that the threat of a one-month blockage could bring oil as high as $110. Few analysts believe an attempt to close the strait will be Iran’s first retaliatory move, though it can’t be ruled out.

The Suez Canal and Bab el-Mandeb Strait—both critical arteries for global trade and fuel transit—are also vulnerable to disruption. The U.S. Navy’s 5th Fleet is the front-line defense of these vital chokepoints, monitoring 2.5 million square miles from the Persian Gulf to the Indian Ocean. But Houthi militants in Yemen, who are closely aligned with Iran, have previously targeted ships near Bab el-Mandeb. Renewed action there cannot be ruled out.

Iran or its proxies could also target oil export infrastructure across Iraq, Saudi Arabia, and the United Arab Emirates. Cyberattacks on refineries, export terminals, or critical infrastructure like ports and pipelines may feature in Tehran’s playbook yet again. In 2019, Iran, or its proxies, attacked oil tankers in the Gulf, downed a U.S. drone, and targeted Saudi Aramco’s facilities in Abqaiq, briefly halving the kingdom’s oil output. Those strikes demonstrated Iran’s capacity to hit energy infrastructure far beyond its borders with precision and plausible deniability.

Israel’s sustained targeting of Iran’s weapons development, drone programs, and military leadership have degraded Iran’s military capabilities. Yet the regime retains dangerous capacity, just as it did in 2019. Nor would it need to act alone. Across the region and beyond, Iran has allies and proxies eager to see the U.S. and Israel suffer consequences, from Hezbollah in Lebanon to militias in Iraq and Syria.

NATO leaders are preparing to meet in The Hague for two days of meetings starting tomorrow. The alliance is divided on how to address rising global threats, including Russia’s aggression in Ukraine. The Iran strikes will undoubtedly sharpen the summit’s focus, and raise difficult questions about deterrence, defense posture, and global energy security.

The threat matrix remains wide and uncertain. Global markets face risks to energy supplies, shipping routes, and the cyber-resilience of trade infrastructure. None of these threats exist in isolation. What began with bombs over Fordow could spiral into a summer of sabotage, disruption, and strategic miscalculations.

About the author: Carolyn Kissane is the associate dean of the NYU-School of Professional Studies Center for Global Affairs, and the founding director of the SPS Energy, Climate Justice, and Sustainability Lab.

Guest commentaries like this one are written by authors outside the Barron’s newsroom. They reflect the perspective and opinions of the authors. Submit feedback and commentary pitches to ideas@barrons.com.