The US-Israel strikes on Iran and Tehran’s forceful retaliation have spooked oil markets, prompting many analysts to warn of a sharp price rise. Iran supplies only about 3–4% of daily global output, but its proximity to the Strait of Hormuz — the world’s most important oil chokepoint — has led forecasters to lift their outlooks.
Why the Strait of Hormuz matters
The Strait of Hormuz links the Persian Gulf to the Gulf of Oman and the Arabian Sea. Large volumes of crude from Saudi Arabia, the UAE, Kuwait and Iraq transit the narrow waterway to reach global markets. Roughly one fifth of the world’s oil moves through the strait; if commercial voyages stop, that exposure becomes a major price shock.
In the days after the attacks, commercial traffic effectively halted as shippers and traders suspended shipments amid safety warnings, threatening about 15 million barrels per day (bpd) of crude — roughly 30% of seaborne crude trade. Energy consultancy Rystad estimates that even rerouting and risk avoidance could translate into an effective loss of 8–10 million bpd. Whether the strait is closed by direct action or rendered unusable by perceived danger, the impact on flows would be similar and could force a significant upward repricing of oil unless rapid de-escalation occurs.
Recent market moves
Brent crude jumped as much as 13% on Monday, March 2 — the first trading day after the strikes — before settling nearer to $77 a barrel as traders weighed the situation at the strait. Prices had already been rising before the confrontation amid fears of military action involving Iran.
How much oil does Iran produce?
Iran produces about 3.3 million bpd, making it one of OPEC’s larger producers, and it holds substantial reserves — estimates from the US Energy Information Administration put Iran’s share at around a quarter of Middle Eastern reserves and about 12% of global reserves. Still, long-term underinvestment and Western sanctions have constrained its output.
Despite sanctions, Iran has found ways to keep exports flowing, with China taking the bulk of those shipments. Driven in part by Chinese demand, Iran lifted crude output by roughly 1 million bpd between 2020 and 2023. Energy exports remain a major source of revenue; EIA-based estimates put Iran’s net oil export earnings at about $53 billion in 2023.
OPEC+ response and short-term buffers
OPEC+, led by Saudi Arabia with partners including Russia, announced a larger-than-expected rise in production quotas to calm markets. But the group stopped short of a much bigger increase, reflecting a tension between addressing an immediate geopolitical shock and avoiding an oversupplied market later in the year.
If Gulf export routes are constrained, extra headline output will provide limited relief: the physical ability to move crude matters more than how much is produced. Saudi Arabia boosted shipments in recent weeks as a temporary buffer, exporting roughly 7.3 million bpd in the first 24 days of February — the highest daily pace since April 2023 according to tanker-tracking data. Such buffers can smooth short-term disruptions but are finite.
How high could prices go?
A prolonged interruption to flows through the Strait of Hormuz, or sustained disruptions to Iranian output, could push prices toward or above $100 per barrel, several analysts warn. William Jackson, chief emerging markets economist at Capital Economics, notes that if Gulf flows are curtailed, oil would likely see a significant upward repricing unless de-escalation becomes clear.
Economic implications
The macro impact depends on the size and duration of any price spike. Oil is a key input across economies, so higher crude typically feeds into broader consumer prices. As a rule of thumb, a 5% year-on-year increase in oil prices adds about 0.1 percentage point to average inflation in major economies. Capital Economics estimates that Brent at $100 per barrel could add roughly 0.6–0.7 percentage points to global inflation.
Higher inflation would erode real incomes, dent consumer confidence and could prompt central banks to tighten policy further, slowing growth. The distributional effects would vary by country depending on energy import reliance and policy responses such as fuel subsidies or targeted relief.
Outlook
Markets remain highly sensitive to developments in the Gulf. Short-term supply buffers and OPEC+ policy can help blunt an immediate shock, but sustained disruptions to shipping through the Strait of Hormuz or to Iranian exports would likely drive a sharp repricing of oil. Rapid de-escalation or clear signals that shipping routes are secure would be needed to bring prices back down.
Note: This piece was updated to reflect the jump in oil prices on Monday, March 2, after US-Israel strikes and subsequent market reactions.