Crude oil prices surged over 9% after Israel attacked Iran’s nuclear sites, escalating tensions in the Middle East. Brent crude hit a five-month high of $78 per barrel. Global markets brace for volatility as fears of wider conflict grow, with potential impacts on oil supply routes and inflation globally.
Global oil markets faced a dramatic upheaval on Friday as prices surged by more than 9% following a military escalation between Israel and Iran. The sharp rise was triggered by Israel’s targeted strikes on Iran’s nuclear facilities and missile production sites, further straining an already fragile Middle Eastern geopolitical landscape.
The price of Brent crude, the international benchmark, rose by over $6, pushing it to a five-month high of $78 per barrel. The spike reflects growing fears of a broader regional conflict that could threaten vital oil supply routes and production hubs in the Middle East.
In response to the escalation, Israel has declared a state of emergency, anticipating a potential counterattack from Iran. The international community is on high alert, with concerns mounting that the conflict could spiral into a more extensive war affecting global oil security.
U.S. President Donald Trump warned that the situation could evolve into a “massive conflict,” though he clarified that the United States had no involvement in Israel’s military action. Meanwhile, the U.S. government has begun evacuating some personnel from bases in Iraq and neighboring countries, signaling rising concern over Iranian retaliation.
Geopolitical Impact on Oil Markets
The Middle East remains central to the world’s oil supply chain. Iran, which produces around 3.3 million barrels per day (mbpd)—accounting for 3% of global oil output—exports nearly half of that amount, with China being its largest buyer (approximately 80%), followed by Turkey.
The Strait of Hormuz, a narrow waterway near Iran, plays a critical role in global oil logistics. Over 20 mbpd of crude oil flows through this route, making it one of the most strategically sensitive chokepoints. In the past, Iran has threatened to block the strait in retaliation to foreign aggression, a move that could severely disrupt global oil supplies from key exporters like Saudi Arabia, Iraq, Kuwait, and the UAE.
Should the conflict escalate further and involve other oil-producing nations in the region, the world could see even sharper price increases, with widespread economic ramifications.
Oil Market Outlook and Supply Dynamics
Despite the current volatility, a report by Emkay Global suggests that the oil market remains fundamentally well-supplied. The OPEC+ alliance recently announced a higher-than-expected production hike for July, potentially cushioning the impact of any reductions in Iranian oil exports.
The report notes that while the recent conflict has caused panic in the markets, similar past incidents between Israel and Iran saw tensions de-escalate over time. However, it cautions that oil prices are likely to remain highly volatile in the near term until more clarity emerges.
Impact on India and Global Economy
India, which has ceased importing Iranian crude due to earlier sanctions, remains somewhat insulated from direct supply disruptions. However, it is not immune to the broader impact of rising oil prices. The Emkay report maintains that the Indian economy should continue to experience lower-than-expected inflation rates despite the turmoil. It forecasts CPI inflation to average between 3.3% and 3.4% in FY26, undershooting the Reserve Bank of India’s (RBI) estimate of 3.7%.
Still, there are risks. A $10 per barrel increase in oil prices can result in a 35 basis point rise in annualized CPI inflation. Similarly, the current account deficit (CAD) could also face upward pressure, with every $10 increase in Brent potentially increasing the CAD-to-GDP ratio by 0.4% to 0.5%, assuming other factors remain constant.
| Also Read: Massive Israeli Strike Hits Iranian Nuclear Sites |
On the upside, Indian oil companies might benefit from strong gross refining margins (GRMs) and resilient marketing margins. Emkay Global maintains a positive outlook for these firms, even with Brent prices hovering around $75 per barrel for the rest of the year.
The latest escalation between Israel and Iran has once again underscored the fragile interconnectedness of geopolitics and global energy markets. While the long-term implications remain uncertain, the immediate impact on oil prices is evident. As nations brace for possible further disruptions, energy markets and economies worldwide are watching closely, hoping that diplomacy prevails over conflict.
