Fresh strikes by U.S. and Israeli forces on Iran have amplified regional tensions and produced early indications of interrupted tanker traffic through the Strait of Hormuz, a critical artery for global oil shipments. Market analysts say the path of oil prices now depends on whether the confrontation remains limited or expands beyond a few days.
Scope of the recent operations
The latest round of military actions was reported to have a wider regional impact than operations carried out in June, and observers say it inflicted heavier losses on Iran's leadership - reportedly including Supreme Leader Ali Khamenei. Iran has responded by targeting U.S. bases around the region and launching strikes on prominent airports, ports and landmark buildings in the Gulf, underscoring the danger of further retaliation.
Tanker flows and the Strait of Hormuz
Oil market attention has turned to the Strait of Hormuz, a chokepoint that transits roughly 20% of the world's oil supply. Shipping through the waterway has already been noticeably reduced, increasing concerns that supply disruptions could follow if conditions deteriorate further.
RBC strategist Helima Croft cautioned that a prolonged conflict would likely have a pronounced effect on crude markets. "[Oil] prices will likely move materially higher if this conflict extends beyond a few days and if the IRGC pursues a survival strategy predicated on exploiting President Trump’s economic pain points," she said.
Croft also noted the IRGC retains tools to make passage through the Strait effectively untenable even without an outright closure. "Though the IRGC may not be able to physically close the Strait of Hormuz, they could potentially still deploy small boats, mines, drones, and missiles to compel insurers and shipping companies to avoid the waterway until the cessation of hostilities," she said.
Regional warnings and military assessments
According to Croft, regional leaders had sounded the alarm to Washington about the contagion risks associated with renewed confrontation with Iran. They warned that oil priced at $100 a barrel or higher was a tangible danger. Croft added that some military planners question whether air power alone can accomplish objectives related to regime change.
Supply buffers and OPEC constraints
Market participants have also highlighted limits to available supply buffers. HSBC strategist David May emphasized that although spare capacity in the Middle East Gulf is sizeable, it would be inaccessible if the Strait of Hormuz were to be closed.
Most OPEC+ producers are reported to be operating close to their maximum output, leaving Saudi Arabia as the primary holder of meaningful spare capacity. Analysts caution, however, that even additional barrels from available spare capacity would provide only limited relief if key shipping lanes become unusable.
UBS oil analyst Josh Silverstein pointed out that higher prices could eventually trigger greater non-OPEC production, but he warned that any such volumes would require time to reach markets.
Bottom line
The immediate trajectory for oil prices hinges on Tehran's next moves and whether the IRGC escalates tactics that would persuade insurers and shippers to steer clear of the Strait of Hormuz. With tanker flows already constrained and spare capacity limited in the event of a closure, analysts see a credible pathway to materially higher crude prices if hostilities persist.