US-Israeli Strikes on Iran Ignite Fears of Oil Price Surge and Global Economic Downturn
The recent US-Israeli military aggression against Iran has sparked intense concerns that escalating conflict in the Middle East could send oil prices skyrocketing, increase costs at petrol pumps, and trigger a worldwide economic recession. The United States initiated "major combat operations" in Iran on Saturday morning, following an Israeli strike on Tehran. Within hours, reports emerged that Iran's Revolutionary Guard warned tankers in the Strait of Hormuz, threatening to block passage through this critical global oil trade route.
Potential Blockade of the Strait of Hormuz Could Disrupt 15 Million Barrels Daily
While Iran has not formally confirmed a shutdown of the narrow waterway—an action that would mark an unprecedented escalation—any halt on trade flows through the Strait of Hormuz could obstruct up to 15 million barrels of crude oil per day from reaching their destinations. In a worst-case scenario, experts warn that oil market prices could surge from approximately $72 per barrel to $100. This development would pose significant trouble for many developed economies, including the United States, which have grappled with inflation's impact on growth and productivity, exacerbating household cost-of-living crises.
Bjarne Schieldrop, chief commodities analyst at the financial services group SEB, commented: "It has become quite clear now that this is the biggest bluff in history and it has gone horribly wrong. Now it is difficult for Trump to back down and pull out all his gunboats and fighter jets without losing face."
Why the Strait of Hormuz Is a Critical Global Trade Artery
The Strait of Hormuz stands as one of the world's most vital arteries for global trade, with about 20% of global oil supplies and 20% of seaborne gas tankers passing through it. Situated between Oman and Iran, this 33km-wide strait links the Gulf to the north with the Gulf of Oman and the Arabian Sea to the south. At its narrowest point, shipping lanes are just 3km wide in either direction, making it a crucial choke point for oil deliveries from OPEC countries to Asian customers. Options to bypass the strait are severely limited, amplifying its strategic importance.
Will Iran Formally Shut the Strait of Hormuz?
For years, Tehran has threatened to use its geographic position to shut the strait in retaliation for military aggression, though it has avoided a prolonged blockade. Experts suggest this instance may differ due to heightened tensions. Jorge León, head of geopolitical analysis at Rystad Energy, noted that Iran has retaliated in a "far more aggressive and expansive manner than in prior exchanges," indicating a "structural widening of the conflict beyond contained or symbolic strikes."
Ajay Parmar, a director at energy market specialists ICIS, stated: "Shutting the strait would be a last resort tactic for Iran. We would expect to see this in a hot war scenario." León added: "Whether the strait is closed by force or rendered inaccessible by risk avoidance, the impact on flows is largely the same."
Reports indicate tankers are already "stuck" in the narrow waterway. According to Reuters, an official from the EU's naval mission Aspides said on Saturday that while Tehran has not confirmed a formal shutdown, Iran's Revolutionary Guard has warned tankers against passage. These include a vessel chartered by Centrica, owner of British Gas, carrying a spot market cargo of liquefied natural gas from Qatar, potentially en route to Asia. A Nigerian vessel destined for Qatar aborted its trip before entering the strait.
Tamsin Hunt, a senior analyst at S-RM, a global intelligence and cybersecurity consultancy, explained: "Closing the strait in full would be devastating for Iran's own economy, as it would mean halting all its exports of oil and other goods. Iran would likely only close the strait as a last resort if the regime feels its core survival is under threat." Parmar noted that former President Trump would also aim to avoid escalation that spikes global oil prices, raising costs for US voters ahead of midterm elections.
However, a full closure is not Iran's only option. Hunt highlighted: "Vessels could face potential signal jamming, detentions of ships and crew, firing of warning shots, and sea mines that would partially obstruct the strait. Even small disruptions would have an outsized impact on the global oil sector, with delays, diversions, and increased insurance and freight costs likely to drive global prices up."
Impact of US Attacks on Global Oil Markets
Prior to the strikes, oil market observers anticipated limited military action could add about $10 per barrel to global oil prices. Rystad Energy has projected that Brent crude prices may jump by $20 at the start of the week, reaching approximately $90 per barrel unless rapid de-escalation occurs before New York oil futures trading resumes. OPEC nations and other oil producers like Russia could agree to a larger-than-planned production increase at their Sunday meeting to mitigate conflict effects.
Rystad warned: "Should the strait remain effectively closed or energy infrastructure be confirmed as damaged, the upside risks to prices would increase further." A prolonged disruption could push oil prices above $100 per barrel. Even in a short, targeted US campaign, Hunt noted that strikes on Iran's oil production and supply lines would disrupt flows to key trading partner China, forcing increased global prices as China competes to replace losses from other sources.
Iran's Oil Reserves and Global Significance
Iran holds the world's fourth-largest proven oil reserves, with up to 170 billion barrels—about 9% of global crude—trailing only Venezuela, Saudi Arabia, and Canada. This makes Iran the fourth-largest oil producer in OPEC and a major crude exporter globally. It also possesses the world's second-largest proven gas reserves, accounting for roughly one-sixth of global gas. However, decades of political unrest, war, and sanctions have reduced its crude production from a 1974 peak of 6 million barrels per day to about 3.5 million barrels. Recent months have seen historic highs in output, despite US sanctions and Israeli bombardments, due to close ties with China, which imports about 90% of Iran's sanctioned crude.
Although Iran's crude exports constitute only 3-4% of the global market, its geopolitical weight extends far beyond production. León emphasized: "The country's geopolitical weight is rooted in its strategic location, its influence over regional security dynamics, and its capacity to disrupt critical energy infrastructure and transit routes."
