Iran-Israel: 10% Oil Price Surge Hits Global Supply Chains
Global oil markets have jolted, with Brent crude jumping more than 10% after Israel confirmed its forces struck Iranian soil on June 13.
The attack, which Israeli officials described a "pre-emptive strike" tied to Iranâs nuclear programme, has triggered fresh concerns about oil supply chains across one of the worldâs most strategically vital regions.
The initial spike in Brent crude saw prices hit their highest level since January, at US$73.12 a barrel. Oil traded on the Nymex exchange in the United States also mirrors this trend, reaching US$73.20. The sharp increase prompts fears that the situation could disrupt global energy supplies, especially if the conflict widens.
What is Brent crude?
Brent Crude is a key global benchmark used to price around two-thirds of the worldâs traded crude oil.
It is a light, sweet crude, ideal for refining.
It originally referred to oil from the Brent field in the North Sea but now includes a blend of six crude oil types: Brent, Forties, Oseberg, Ekofisk, Troll (BFOET) and Midland oil from Texas.
Though based in Northwest Europe, Brent sets prices for oil from Europe, Africa and the Middle East.
The impact
Energy traders have reacted swiftly to the potential fallout.
"It's an explosive situation, albeit one that could be defused quickly as we saw in April and October last year, when Israel and Iran struck each other directly," Vandana Hari of Vanda Insights told the BBC. She added: "It could also spiral out into a bigger war that disrupts Mideast oil supply."
The FTSE 100 in London opened 0.6% lower after closing at a record high a day earlier. Across Asia, Japanâs Nikkei dropped 1.3%, South Koreaâs Kospi fell 1.1% and Hong Kongâs Hang Seng slipped 0.8%. In Europe, markets in Germany, France, Italy and Spain fell by more than 1%, while US futures signal further declines ahead.
Allen Good, Director of Equity Research at Morningstar, explains: "We expect, absent a wider war, today's rise in prices will likely prove to be a sell-the-news event.
"Oil markets remain amply supplied with OPEC set on increasing production and demand soft. US production growth has been slowing, but could rebound in the face of sustained higher prices.
"Meanwhile, a larger war is unlikely," Allen predicts. "The Trump administration has already stated it remains committed to talks with Iran.
"We expect a response from Iran, but it will likely be modest, like past retaliatory strikes and not spark a wider war. Ultimately, fundamentals will dictate price, and they do not suggest much higher prices are necessary. Although the global risk premium could rise, keeping prices moderately higher than where they've been much of the year."
That said, the conflict’s knock-on effects stretch beyond oil.
Gold, long considered a safe haven in times of geopolitical stress, has climbed 1.5% to US$34,434 an ounce, just shy of April’s record. The Swiss franc and Japanese yen are also rising, gaining 0.4% against the dollar, while the US dollar index strengthens by 0.5%.
All eyes on the Strait of Hormuz
The main concern now centres on the Strait of Hormuz, a narrow but crucial waterway linking the Gulf with the Arabian Sea.
Around one fifth of the world’s oil and a large share of liquefied natural gas pass through it. Iran borders the strait to the north, with Oman and the UAE to the south. If Iran chooses to retaliate by targeting infrastructure or shipping in this corridor, the impact on global supply could be severe.
"There’s not just the outlook for Iranian exports that’s a concern but also the potential for disruption to shipping in the Persian Gulf’s Strait of Hormuz," says Derren Nathan of Hargreaves Lansdown.
"Itâs a key route for about 20% of global oil flows and an even higher proportion of liquified natural gas haulage."
Dozens of tankers navigate this narrow route at a time, transporting crude and gas from Middle Eastern producers to global markets. Any disruption would affect the flow of millions of barrels daily and could tighten an already fragile global supply chain.
Wider investment impact
The escalation also hits the aviation industry.
Airlines have cleared airspace over the region, meaning shares in IAG, which owns British Airways, and easyJet have fallen more than 4%. Meanwhile, defence stocks are rising, with BAE Systems climbing nearly 3% as investors weigh the chances of prolonged conflict.
BP and Shell have seen gains of around 2%, reflecting their exposure to oil price movements, though Morningstar points out these increases remain muted given negative sentiment towards the fossil energy sector.
"With sentiment negative towards the sector, energy is currently the cheapest sector in Europe," explains Michael Field of Morningstar.
For ESG funds, the timing is challenging as Kenneth Lamont, Principal for Morningstar's Manager Research Department, notes the widening divide between ESG-aligned portfolios and traditional sectors like defence and fossil fuels.
"A serious military escalation in the Middle East could deal another blow to ESG funds, which have already been battling against poor performance rising anti-ESG sentiment - particularly in the US," he explains.
"Traditional sectors often excluded from ESG portfolios, such as defence and fossil fuels, are likely to benefit, widening the performance gap. The recent EMSA ESG naming guidelines, which emphasise climate objectives for sustainable funds and have further curtained fossil fuel exposure, further cementing this divide.”
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