Publication date:
June 23, 2025
Oil Prices Surge as US Strikes Iran's Nuclear Facilities
Oil prices hit a 5-month high following US strikes on Iran's nuclear sites, with concerns about potential disruptions to global oil supply through the Strait of Hormuz.
Energy
Oil markets reacted strongly to the US strikes on Iran's nuclear facilities, with prices surging to a five-month high in Asian trading on Monday. The geopolitical tensions have reignited fears of potential disruptions to global oil supply, particularly through the critical Strait of Hormuz.
US benchmark West Texas Intermediate initially rose by 6.2%, while international benchmark Brent crude futures gained up to 5.7%. However, both benchmarks later pared gains, suggesting that investors are not yet pricing in a full-scale disruption of global oil supplies.
The Strait of Hormuz, a key shipping lane connecting the Persian Gulf to the Indian Ocean, is crucial for global energy markets. Approximately one-third of the world's seaborne oil trade and one-fifth of global liquefied natural gas passes through this narrow waterway.
Iran's parliament has voted to close the Strait of Hormuz in retaliation to the US action, although the final decision rests with the country's top security officials. This threat has added a significant geopolitical risk premium to oil prices, estimated at around $12 per barrel by Goldman Sachs analysts.
The potential for escalation remains high, with Goldman Sachs projecting that Brent oil prices could rise to around $90 per barrel if Iranian crude supply were to drop by 1.75 million barrels per day. In a more extreme scenario, where oil flows through the Strait of Hormuz were to drop by 50% for one month and remain down 10% for another 11 months, Brent could briefly spike to around $110 per barrel.
The timing of these events coincides with the summer driving season in the US, when gasoline demand typically peaks. If sustained, the rise in oil prices could lead to higher pump prices for consumers, with the Energy Information Administration estimating that gas prices typically rise by 2.4 cents per gallon for every $1 increase in crude oil prices.
While the situation remains fluid, analysts note that there are strong economic incentives for major powers, including the US and China, to prevent a sustained and significant disruption of the Strait of Hormuz. Nevertheless, the energy sector remains on high alert as geopolitical tensions continue to evolve in this critical region.
Energy traders and analysts are closely monitoring developments, weighing the potential for further escalation against the possibility of diplomatic efforts to de-escalate the situation. The coming days and weeks will be crucial in determining the longer-term impact on global energy markets and prices.
US benchmark West Texas Intermediate initially rose by 6.2%, while international benchmark Brent crude futures gained up to 5.7%. However, both benchmarks later pared gains, suggesting that investors are not yet pricing in a full-scale disruption of global oil supplies.
The Strait of Hormuz, a key shipping lane connecting the Persian Gulf to the Indian Ocean, is crucial for global energy markets. Approximately one-third of the world's seaborne oil trade and one-fifth of global liquefied natural gas passes through this narrow waterway.
Iran's parliament has voted to close the Strait of Hormuz in retaliation to the US action, although the final decision rests with the country's top security officials. This threat has added a significant geopolitical risk premium to oil prices, estimated at around $12 per barrel by Goldman Sachs analysts.
The potential for escalation remains high, with Goldman Sachs projecting that Brent oil prices could rise to around $90 per barrel if Iranian crude supply were to drop by 1.75 million barrels per day. In a more extreme scenario, where oil flows through the Strait of Hormuz were to drop by 50% for one month and remain down 10% for another 11 months, Brent could briefly spike to around $110 per barrel.
The timing of these events coincides with the summer driving season in the US, when gasoline demand typically peaks. If sustained, the rise in oil prices could lead to higher pump prices for consumers, with the Energy Information Administration estimating that gas prices typically rise by 2.4 cents per gallon for every $1 increase in crude oil prices.
While the situation remains fluid, analysts note that there are strong economic incentives for major powers, including the US and China, to prevent a sustained and significant disruption of the Strait of Hormuz. Nevertheless, the energy sector remains on high alert as geopolitical tensions continue to evolve in this critical region.
Energy traders and analysts are closely monitoring developments, weighing the potential for further escalation against the possibility of diplomatic efforts to de-escalate the situation. The coming days and weeks will be crucial in determining the longer-term impact on global energy markets and prices.
