Rising Israel-Iran tensions trigger new concerns in global markets

Published on 03.07.2025

The recent strikes reportedly targeting Iranian infrastructure, including nuclear-related and military facilities, have once again set off alarm bells across international markets. While tensions in the Middle East are nothing new, this escalation comes at a particularly fragile moment for global markets: sluggish economic growth, persistent inflation, and central banks that are only beginning to ease their monetary policies.

The commodity market's reaction in the USA was immediate. Brent crude, the global oil benchmark, surged above $78 per barrel after the first reports. Although it has since retreated slightly to around $74.50, that price is still $10 higher than it was just a month ago.

While we are not yet in a full-blown energy crisis, analysts and investors are now questioning how far this situation could escalate and how vulnerable the global oil supply chain truly is.

Oil prices rise: A real threat or a temporary shock?

From the pandemic to the war in Ukraine, global energy markets have faced several waves of disruption. Now, the Israel-Iran conflict joins the list. Each of these events has caused major shifts in oil prices, highlighting how extremely sensitive the US commodity market is to geopolitical risks.

Despite the recent rebound, crude oil is still trading far below the crisis levels seen in 2022, when it briefly surged past $130 per barrel. It also remains below last year's levels, indicating that the market has not yet priced in a full-scale energy crisis.

Still, one critical chokepoint looms large: the Strait of Hormuz. This narrow maritime corridor is vital to global energy trade and carries nearly 20% of the world’s oil supply. On 22 June, Iran’s parliament announced a closure of the Strait, with heavy consequences for one-fifth of the world’s oil supply. The impact on the oil markets remains to be seen at the time of writing.

Higher energy costs ripple through gasoline, food, and production

When oil rises, the effect isn’t limited to market charts: it affects everyday life. Fuel prices go up, electricity bills increase, and basic goods become more expensive. A $10 jump in oil prices can translate to several extra cents per liter at the gas pump, depending on local taxes and national policies.

But the chain reaction goes further. Transportation becomes costlier, running agricultural machinery grows more expensive, and logistical costs throughout the food supply chain increase. These effects generate inflationary pressure that could intensify if oil remains elevated for an extended period.

And it’s not just oil:, natural gas rose from $2.65/mmBtu on June 13 to $2.90/mmBtu by June 16, while Asian Liquified Natural Gas spiked from $12.60 to $14.00/mmBtu between June 13–20. Although the impact may take longer to be felt due to price caps in countries like the UK and Germany, the risk of rising household energy costs is real. Millions of households that rely on gas for heating or electricity could feel the financial strain if prices stay high for too long.

A new obstacle for the global economy

Just as the global economy is attempting to recover, this new geopolitical flare-up poses an additional threat that could complicate the outlook even further.

Mohamed El-Erian, renowned economist and advisor to Allianz, warns that we are facing ‘a negative shock at the worst possible time’. Major central banks – like the Fed, ECB, and BoE - had begun mapping out rate-cut strategies, aiming to ease borrowing costs without reigniting inflation. But a sudden rise in energy prices could force them to delay or reverse those plans.

Capital Economics estimates that if oil surpasses $100 per barrel again, inflation in developed economies could increase by as much as 1%. That would put central banks like the Fed or the European Central Bank in a difficult position as they strive to bring inflation back to its target levels.

The result? Tighter credit conditions, reduced investment, and slower consumer spending: the exact opposite of what the fragile global economy needs right now.

Could this crisis accelerate the global energy transition?

Although the media spotlight is focused on oil, this crisis could spark a wider energy reset: act as a catalyst for changing distribution routes and altering the balance of supply and demand.

The world’s reliance on such a geopolitically unstable region exposes the urgent need to diversify energy sources.

Europe may be pushed to ramp up its investments in clean technologies, energy storage, and domestic renewable production. Meanwhile, the U.S. and China could double down on strategic sectors such as lithium, green hydrogen, and solar and wind power.

Electric mobility, battery innovation, and renewable generation could all benefit from renewed investment in a context where energy security is becoming a strategic priority. History has shown that major disruptions often spark technological revolutions, and we may be standing at the edge of one right now.

Conclusion

The Israel-Iran conflict has once again exposed the fragile balance of the global energy system. While oil prices have yet to reach crisis levels, the threat of regional escalation — especially given the closure of the Strait of Hormuz — is something markets cannot afford to ignore.

The economic impact will depend on how long the conflict lasts, how international powers respond, and whether oil-producing nations can stabilize supply. In the meantime, central banks are caught in a dilemma: how to curb a potential new inflation wave without bringing economic growth to a halt.

Beyond the immediate shock, this episode should serve as a global wake-up call. Energy security is no longer just about stable prices or supply— it is now a strategic issue tied to global power and political stability. Diversifying sources, investing in renewables, and building a more resilient energy infrastructure will be critical to avoiding the next global crisis.