The US-Israel attack on Iran and Tehran’s aggressive response have unnerved oil markets, prompting many analysts to predict a sharp rise in oil prices. Iran accounts for only about 3-4% of global oil output, but its location beside the Strait of Hormuz — the world’s most critical oil chokepoint — has pushed forecasters to raise price outlooks.
A prolonged disruption to traffic in the strait, through which roughly a fifth of the world’s oil passes, could see prices breach $100 per barrel. That would hurt the global economy and push up already stubborn inflation. Brent crude surged as much as 13% on Monday, March 2 — the first trading day after US-Israel strikes — before easing to around $77 a barrel as traders focused on the Strait of Hormuz, where commercial traffic has effectively stopped.
Oil prices had already been rising in the run-up to the conflict amid worries over potential military strikes on Iran. OPEC+ agreed to boost production from April in an effort to calm markets.
If the conflict is prolonged and affects actual supply — through disruptions to Iranian output or attempts to block the Strait of Hormuz — oil prices could jump to around $100 per barrel, warns William Jackson, chief emerging markets economist at Capital Economics.
How much oil does Iran produce?
Iran produces about 3.3 million barrels per day (bpd), making it the fourth-largest producer in OPEC. It also holds some of the world’s largest oil reserves — roughly a quarter of Middle Eastern reserves and about 12% of global reserves, according to the US Energy Information Administration (EIA) — but output has been constrained by underinvestment and sanctions.
Iran has found ways to bypass Western sanctions, selling about 90% of its exported oil to China. Driven by Chinese demand, Iran raised crude output by roughly 1 million bpd between 2020 and 2023. Energy exports remain a key revenue source: EIA estimates put Iran’s net oil export earnings at about $53 billion in 2023.
Why is the Strait of Hormuz in focus?
The Strait of Hormuz connects the Persian Gulf to the Gulf of Oman and the Arabian Sea, lying between Iran and Oman. Large volumes of crude from Saudi Arabia, the United Arab Emirates, Kuwait and Iraq flow through it to global markets. Iran has repeatedly threatened to close the strait but has not done so, aware that such a move would risk provoking a swift international response that could also hamper its own exports.
Amid the current war, traffic through the strait has largely halted as shippers and traders suspend shipments over safety concerns and warnings. That endangers about 15 million bpd of crude — roughly 30% of global seaborne crude trade. Even if alternative routes are used to bypass the strait, Rystad Energy estimates the impact could amount to a loss of 8–10 million bpd of supply. Jorge Leon, head of geopolitical analysis at Rystad, notes that whether the strait is closed by force or rendered inaccessible by risk avoidance, the effect on flows is similar and would likely trigger a significant upward repricing of oil unless de-escalation signals appear quickly.
How has OPEC+ responded?
OPEC+ — led by Saudi Arabia alongside producers including Russia — announced a larger-than-expected increase in production quotas. However, the group stopped short of a more forceful boost, reflecting a balance between addressing immediate geopolitical risk and avoiding oversupply later in the year. If Gulf flows are constrained, extra headline output will offer only limited immediate relief; access to export routes matters more than nominal output targets.
Saudi Arabia increased its crude exports in recent weeks as a short-term buffer ahead of the strikes, shipping about 7.3 million bpd in the first 24 days of February — the highest since April 2023, according to tanker-tracking data compiled by Bloomberg. Such buffers are finite and meant to smooth short-term shocks rather than offset sustained disruptions. Iran also raised exports ahead of US negotiations.
How would higher oil prices affect the global economy?
The economic impact depends on the size of the price rise. Crude oil is a major input across economies, so higher oil prices feed into broader consumer prices. As a rule of thumb, a 5% year-on-year rise in oil prices typically adds about 0.1 percentage point to average inflation in major economies. Capital Economics’ William Jackson estimates a rise in Brent to $100 per barrel could add roughly 0.6–0.7 percentage points to global inflation. Higher inflation could reduce consumer confidence and spending, and prompt central banks to raise interest rates, further slowing growth.
Edited by Ben Knight
Editor’s note: This article, originally published on March 1, has been updated to reflect the jump in oil prices on Monday, March 2.