WASHINGTON, July 30 — The resumption of U.S. strikes against Iran, following the initial missile attack, has pushed global oil markets into familiar territory: fear. Benchmark Brent crude futures have already shot above $90 a barrel, up from an average of around $85 last year. For anyone who has been watching the Middle East and energy prices, the pattern is a well-worn one.
The immediate reason for the jolt is geography. Iran sits on the Strait of Hormuz, a narrow waterway through which roughly a fifth of the world’s petroleum moves — about 17 million barrels a day in 2023.
When tensions rise, the risk of a supply disruption rises with them. Iran has threatened to block the strait before, and now that direct U.S. military action is back on the table, traders are pricing in that possibility.
The Strait of Hormuz Factor
Think of the Strait of Hormuz as the world’s most crucial bottleneck for oil. About 20% of global petroleum transits that small stretch of water. If that passage were even partially disrupted, the supply shock would hit every major economy.
It’s why conflict near the strait always makes oil markets jump — and why the practical upshot for ordinary consumers could be higher prices at the pump if the situation escalates. History offers a few stark precedents.
In January 2020, after the U.S. killing of Iranian general Qasem Soleimani, oil jumped to $70 a barrel — before the COVID-19 demand collapse sent prices crashing. In September 2019, an attack on Saudi Aramco’s oil facilities, which was linked to Iran, caused a one-day spike of 15%. Those events, while brief, show how quickly markets can react to a direct threat to supply.
What History Tells Us
The current context is different in at least one key respect: the U.S. has a cushion. The Strategic Petroleum Reserve held roughly 375 million barrels as of early 2024, enough to cover short-term disruptions. That reserve has been used before to stabilize markets during geopolitical shocks.
So in plain terms, the U.S. has a buffer against a sudden oil price spike — but only for a limited time. For Iran’s own economy, the picture is grim.
The country is already under heavy U.S. sanctions, which have cut its oil exports from 2.5 million barrels per day in 2017 to somewhere between half a million and a million barrels per day in 2023. That’s a huge loss of revenue. The Iranian rial, already devalued, could weaken further.
And insurance rates for tanker shipping in the Persian Gulf are expected to rise, making it even more expensive to move oil through the region.
The Ripple Effects
U.S. inflation, which had been moderating, could face renewed upward pressure if oil stays above $90 a barrel. Higher energy costs tend to feed into everything from transportation to manufacturing, so it’s not just the oil market that gets spooked. Broader stock indices, such as the S&P 500 and the Dow, typically decline on this kind of geopolitical shock.
Investors hate uncertainty, and a military confrontation involving Iran is nothing if not uncertain. OPEC+ may consider emergency meetings to discuss how to respond.
The group has the ability to adjust production levels, but it’s not clear whether they would act to cool prices or simply wait to see how the situation develops. The source material doesn’t specify any decision, only that emergency meetings are a possibility. What to watch next: whether the Strait of Hormuz remains open and whether the U.S. and Iran signal any willingness to de-escalate.
For now, the oil market is in a holding pattern, waiting to see if this becomes a brief flare-up or a longer conflict. Either way, the practical upshot for consumers and investors alike is the same: higher volatility, higher risk, and a reminder that the world’s energy supply still runs through a very narrow channel.
