The United States has decided to attack Iran, the world’s tenth largest oil producer. What does this mean for oil prices?
Throughout history, conflicts in the Middle East have had a major impact on oil prices, especially in the short term, due to the region’s strategic role as the world’s leading producer and exporter of crude oil. However, the oil market’s reaction varies depending on the time frame and scale of the conflict.
What should we expect in the short term? The short-term impact of a conflict on oil prices is usually immediate and sharp. This reaction is often driven by concerns about supply disruptions, the risk of damage to key infrastructure (oil pipelines, refineries, ports) and strong speculative response from financial markets. For example, after the Yom Kippur War in 1973, prices doubled in a matter of weeks. During the invasion of Kuwait in 1990, crude oil rose rapidly by about 70 per cent. Even more recent conflicts, such as the Iran-US tensions in 2019 or the Israel-Hamas conflict in 2023, saw increases of 4% to 15% in a few days.
This time has been no exception and oil prices have soared by more than 15%. The market is beginning to price in the possibility of Iran’s closure of the Strait of Hormuz, through which some 20% of oil trade passes. However, closure would be economic suicide for Iran, since oil exports account for 17% of Iran’s GDP. It already threatened in 2012 and 2019 to close the strait but in the end did not do so for obvious reasons.
And in the medium and long term, what should we expect? In the medium term, price developments depend on whether the conflict leads to real disruptions in oil production or exports. If there are persistent disruptions, prices will remain high. If the conflict does not physically affect supply, prices will tend to stabilise. For example, during the Iraq war in 2003, the price of crude oil rose in the months leading up to the war, but fell after hostilities began, as production was not significantly disrupted. In contrast, the Iran-Iraq conflict in the 1980s had a more lasting impact because of the continuing disruption to production and transport.
In the longer term, oil prices tend to normalise if the conflict does not lead to a structural or prolonged supply disruption. Supply from other countries, such as the US (through shale oil) or from OPEC, is often adjusted to stabilise the market. Global demand also plays a role: if there is a recession, prices fall; if the economy grows, they are sustained. Thus, conflicts such as the Arab Spring (2011) or Israel-Gaza (2023) had limited long-term effects. Only protracted conflicts or embargoes, such as the 1973 conflict, have had lasting effects.
In short, oil reacts strongly to the onset of a conflict, but its impact moderates over time if there is no real impact on supply. Despite the various media headlines, one must remain calm.
Date of report: June 23rd 2025