Oil markets rattled as Israel-Iran conflict escalates, threatening global energy supply

Israel’s military strike on Iranian nuclear and missile facilities has sent shockwaves through global oil markets, igniting fears of a broader Middle East conflict that could severely disrupt energy supplies. The attack — launched early Friday — caused crude prices to surge as traders braced for retaliatory moves that could threaten the flow of oil through the region’s critical chokepoints.

Brent crude, the international benchmark, surged more than 10% to $75.15 per barrel — its highest in nearly five months — while U.S. West Texas Intermediate futures also spiked by double digits. The sharp gains reflect market concern that this may not be an isolated incident. “The scale and precision of Israel’s strike indicate a new phase of confrontation,” noted energy analyst Amarpreet Singh of Barclays.

The Strait of Hormuz, according to dw.com, through which nearly 20% of global oil supply — roughly 18-19 million barrels per day — passes, is once again in focus. Any threat to the free movement of tankers through this narrow waterway between Iran and Oman could send oil prices soaring further. Iran has previously threatened to block the strait in times of military tension.

Global equity markets were quick to react. European and Asian stocks opened lower, with Germany’s DAX among the worst hit. On Wall Street, the S&P 500 and Nasdaq both slipped as investors fled to traditional safe havens — gold, U.S. Treasuries, and the dollar.

In contrast, energy stocks saw a surge. Oil majors and defense contractors rallied, with European firms like BAE Systems and Rheinmetall gaining 2–3% amid expectations of prolonged geopolitical instability.

Deutsche Bank analysts described the market reaction as a “classic risk-off move” and warned that “fears of escalation and regional contagion are now the dominant narrative for oil traders.”

Israel, Iran, Iraq, and Jordan have closed their airspace, prompting major carriers to cancel or reroute flights — a move that increases aviation fuel demand and disrupts global logistics. Israeli carriers have begun relocating planes abroad, and many international flights now face longer, costlier routes.

Such disruptions, while indirect, could compound oil demand volatility and feed into broader inflationary pressures.

The timing of this conflict is particularly dangerous for the oil market and global economy. Already strained by U.S.

President Donald Trump’s unpredictable trade tariffs, global supply chains now face a new threat from potential oil supply disruptions. Analysts warn that every 10% increase in oil prices could raise global consumer inflation by 0.4% over the following year.

“If the conflict spreads to other oil producers or leads to a closure of the Strait of Hormuz, we could be looking at $100+ oil again,” said Peter Sand, chief analyst at Xeneta. Shipping costs are also set to rise further, with security surcharges likely to be imposed on vessels passing through contested waters.

The Red Sea — a key trade corridor — has already seen attacks on commercial vessels by Iran-backed Houthis in Yemen, and any widening of conflict to include Hezbollah or other Iranian proxies could severely disrupt regional energy exports, including LNG shipments from the Gulf.

Iran, the third-largest oil producer in the region, remains economically constrained by international sanctions, but continues to supply large volumes of crude to Asia — especially China and India. Any damage to its production or export infrastructure could ripple across oil-hungry economies.

Meanwhile, Israel faces mounting financial pressure. Its ongoing Gaza war has strained public resources, and economists estimate that a broader war with Iran could cost the country up to $120 billion—equivalent to 20% of its GDP.

As the Israel-Iran conflict unfolds, oil markets remain on edge. A protracted or expanding conflict in the Middle East could not only drive up energy prices but also sharply increase the risk of global recession, particularly if disruptions extend beyond crude oil to include LNG and refined product flows.

With tensions escalating and key supply routes under threat, the oil market is once again serving as a barometer for geopolitical risk—and for now, it’s flashing red.