The Future of Oil Markets: The U.S., Israel, and Iran Conflict
- Kawtar Rettab
- 13 minutes ago
- 6 min read
1. The Oil Supply Shock
The global oil market has experienced a severe supply shock, with crude oil prices surging to multi-year highs due to growing risk of disrupted energy flows. Since the U.S., Israel and Iran war began, oil and gold prices have been extremely volatile. Several factors are affecting these, most notably the closures of the Strait of Hormuz and other Middle-Eastern shipping routes, changing policies, and uncertainty in the markets. This article explores the oil shock from February to March, 2026.
The Strait of Hormuz, which transports 20% of the world’s liquid petroleum shipping supply, was shut down by Iran. Alternate routes such as the Red Sea are threatened by the Houthi movement in Yemen, which has reportedly attacked commercial shipping vessels, while armed groups in Iraq and Syria are increasing pressure on U.S. positions. As a result, oil transportation across key Middle Eastern routes has become blocked. The risk of a global oil supply shock is becoming increasingly prevalent, which could drive up oil prices, triggering inflation, and ultimately affecting the affordability of our everyday goods and services. As these disruptions continue, the consequences are already beginning to appear across global energy markets.
2. Impact of Oil Supply Shock
These sustained closures have led to disruptions in oil and LNG market supply and availability, which will increase the price of essential goods and services such as transportation, plastics, manufacturing, and industrial production, and more which will ripple out and impact most products and economies. Due to the closure of the Strait, Kuwait had to cut crude oil production by 100,000 barrels per day. Abu Dhabi closed its Ruwais refinery following a drone attack from Iran. Qatar has suspended all liquefied natural gas (LNG) production, which accounts for roughly 20% of global supply, due to its inability to export via the Strait of Hormuz. The implications of reduced LNG supply is significant, as LNGs are used for gas supply for heating, cooking, and more. This risks wider energy shocks, affecting industrial production and living expenses internationally. Consequently, these energy disruptions are likely to place significant pressure on economies that rely heavily on Middle Eastern oil and gas imports.
3. Affected Economies
The most affected economies will be in Asia. According to Bloomberg, China accounts for 38% of oil imports transiting the Strait of Hormuz, followed by India (15%), South Korea (12%), Japan (11%), and the rest of Asia (14%). Europe accounts for only about 3% of oil imports transiting the Strait of Hormuz. The majority of European oil imports come from Norway, the US, Kazakhstan, but also include Middle eastern imports and thus may also be directly affected. It is most reliant on the US for LNG imports, followed by Russia, Algeria and Qatar, and may see energy prices rise significantly unless alternative suppliers can be found.
4. Political Participants
The conflict involves several participants. The United States and Israel have bombed several nuclear facilities in Iran. Iran retaliated by attacking military bases, oil refineries, and even commercial sources across neighboring Gulf countries as well as Israel. For example, Iran struck Saudi loading facilities, refinery infrastructure in Bahrain, the Haifa refinery in Israel, and US military targets in the UAE. In response, the U.S. and Israel have also reportedly struck multiple oil facilities inside Iran, prolonging the conflict.
Iran controls the oil transportation chokepoint, and seems to want to pressure the US through higher oil prices, even through attacking other gulf producers. Iran is using the Strait of Hormuz and oil supply restrictions as the chokepoint for bargaining power against Trump and Israel’s demands for Iran to shut down nuclear development. Trump has even lifted some Russian sanctions temporarily to deal with the oil crisis, despite Russia having provided Iran with leaks on military information.
Other regional countries are affected deeply despite being neutral parties. Qatar is attempting to host ceasefire discussions to promote peace, while suffering LNG export disruptions. Oman, Kuwait, and Jordan are also caught in the fallout, facing economic and strategic consequences of a conflict threatening trade flows and regional stability of the Middle East.
5. Global Responses
According to BBC, as of March 11 2026, G7 nations met to discuss the release of oil reserves, to combat the inflationary pressures of the global oil supply shock. The IEA has requested 32 member countries to release 400 million barrels of oil as a temporary measure. Several countries such as Japan, Germany, and Austria have agreed to release their strategic oil reserves. According to Euronews, this has led to oil prices stabilizing, as investors may expect more stable oil supply thus lower prices. Furthermore, the U.S. may plan to reduce sanctions on alternative oil producers in order to cool inflation.
As of March 14th, according to CNBC, “More than 30 nations in Europe, North America and Northeast Asia agreed to flood the market with 400 million barrels of oil”, with the U.S. planning to release 173 million barrels from its SPR. This may stabilize oil prices and control inflation.
6. Market Pricing of Brent & WTI Crude Oil
Brent crude and WTI crude have both repriced rapidly in response to these developments. Brent started at has been cited around $87.44 per barrel in March 6th, rising roughly 15% over five days and about 30% over the past month, while WTI has been quoted near $90.90 per barrel, implying that markets are incorporating a risk premium on oil prices. According to an analysis at Sparta Commodities, markets are repricing as a real disruption rather than a temporary issue. As of March 13th, Brent crude has risen to a price of $103.14 due to prolonged tensions in the Middle East.
Market analysts emphasize that this is a supply-side crisis, not a demand-side one. J.P. Morgan has noted that global oil demand remains near 103 million barrels per day, suggesting that consumption has not collapsed. The problem is that the physical arrival of oil is failing. That distinction is critical, because supply disruptions of this kind tend to be more inflationary and destabilizing than demand-side shocks.
7. Broader economic consequences and possible scenarios
Higher oil and fuel prices will likely result in higher transportation costs, manufacturing costs, household expenses, logistics chains, and food prices. Because oil is an essential input across modern economies, a disruption at this scale would affect consumers, businesses, and governments worldwide. The longer this inflationary effect persists, the more serious the macroeconomic consequences will become.
Goldman Sachs (March 8th) has suggested that oil could rise above $100 per barrel within days and potentially reach $150 by the end of March if the Strait of Hormuz remains effectively blocked. The same research reportedly argues that if the Hormuz closure is prolonged, the consequences could be around 17 times larger than the 2022 Russia-related production shock. In that scenario, the market could shift from expensive oil to outright shortages.
If a peaceful resolution were somehow achieved, oil prices would likely fall, tanker shipments could resume, and OPEC members might be able to increase exports through pipelines and alternative routes. But if the conflict escalates further, especially through continued attacks on export infrastructure and shipping, then Brent crude could move decisively above $150 per barrel, leading to longer-term inflationary pressures globally. This would likely remain until alternative oil producers are found.
9. Conclusion
The current conflict between the United States, Israel, and Iran has caused one of the largest inflationary disruptions of the decade. Oil markets are rapidly repricing in response to the closure of the Strait of Hormuz, and LNG exports also face significant interruptions. The inflationary consequences will likely affect economies far beyond the Middle East, as oil is used in nearly all industries and manufacturing processes.
Daily developments are affecting the Middle East. A prolonged conflict, damage to oil infrastructure, and lack of use of strategic reserves will probably see oil prices continue to rise. However, factors that could cause prices to dip include the reopening of the Strait of Hormuz, the release of additional strategic petroleum reserves by major economies, changing oil sanction policies, or a diplomatic resolution that restores stability, or can end the war and reopen the Middle Eastern shipping routes. Ultimately, the direction of oil prices will depend on whether the geopolitical conflict between the U.S., Israel and Iran will escalate further or find a resolution.
Update (April 2026): A temporary ceasefire between the United States and Iran was reached in early April 2026, which may ease supply tensions. However, political tensions remain, and a lasting peace agreement is still uncertain. This analysis covers the February-March peak period.