Can Oil Prices Avoid a $120 Spike Amid Iran-Israel Tensions?

Brent crude rose 0.4 percent to $76.73 per barrel, and WTI gained 0.5 percent to $75.24 on June 18, 2025, recovering from early losses, per a Reuters report. The Iran-Israel conflict, now in its sixth day, fuels fears of a Strait of Hormuz closure, through which 20 percent of global oil flows, per a 2025 U.S. EIA report.

A Deutsche Bank analysis warns that a two-month blockade could spike prices to $124 per barrel, surpassing the $115 peak after Russia’s 2022 Ukraine invasion.

Despite a 5 percent increase in ship traffic through the strait last week, per a 2025 Joint Maritime Information Centre report, electronic interference and cautious tanker positioning signal rising risks, per a 2025 Lloyd’s List Intelligence update.

What Drives the Conflict’s Impact on Oil?

Trump’s call for Iran’s “unconditional surrender” and discussions of U.S. strikes on Iranian nuclear sites, per a 2025 Wall Street Journal report, escalate tensions. Iran's rejection of a ceasefire and threats to close the Hormuz amplify supply concerns, according to a 2025 Reuters article and a 2025 Al Jazeera report.

Iran’s 3.3 million barrels per day (bpd) output, 1.6 percent of global demand, faces risks from Israeli strikes on facilities like South Pars, per a 2025 Al Jazeera article.

China, importing 75 percent of Iran’s oil, could pressure Tehran to keep the strait open, per a 2025 CNBC report, but prolonged conflict may disrupt 2.1 million bpd of Iranian exports, per a 2025 Goldman Sachs estimate.

ALSO READ | OPEC’s Role Looms Large in Conflict-Driven Price Hikes?

How Will Fed Policy Influence Oil Prices?

The Fed’s June 18 decision could shift oil dynamics by holding rates at 4.25%-4.50 percent, according to a 2025 CME FedWatch Tool. A dovish signal, with 58 percent odds of a July cut, per a 2025 Bloomberg report, may boost demand by spurring growth and supporting prices.

A hawkish stance, driven by oil-driven inflation fears, could strengthen the dollar, capping oil gains, per a 2025 CNBC analysis. A 10.1 million barrel drop in U.S. crude stocks, per a 2025 Reuters report, tightens supply, adding upward pressure.

The conflict’s inflationary potential, per a 2025 J.P. Morgan note, complicates the Fed’s calculus, risking delayed rate cuts if prices surge.

Supply Disruptions Threaten Global Markets

A Hormuz closure could block 20.9 million bpd, including Saudi Arabia’s and the UAE’s exports, per a 2025 EIA report. Goldman Sachs warns of $100-plus prices in an extended disruption, per a 2025 Investopedia article.

Iran’s proxies, like Iraq’s militias, could target regional infrastructure, per a 2025 New York Times report, exacerbating shortages. OPEC’s refusal to release emergency stocks, per a 2025 CNN report, and limited spare capacity, per a 2025 IEA report, heighten risks.

Freight rates to China jumped 24 percent to $1.67 per barrel, per a 2025 Kpler report, reflecting heightened shipping costs and delays.

Did you know?
The 1980-1988 Iran-Iraq “Tanker War” saw 340 ships attacked in the Persian Gulf, yet the Strait of Hormuz remained open, per a 2023 U.S. Naval Institute report.

Inflation Risks Loom Large

Rising oil prices could reignite global inflation, with U.S. gasoline prices up 20 cents per gallon in weeks, per a 2025 New York Times report. India, reliant on Gulf imports, faces a ballooning import bill, per a 2025 NDTV report, while Australia’s petrol could hit $2.20 per liter, per a 2025 ABC News report.

Central banks, including the Reserve Bank of Australia, may delay rate cuts, per a 2025 The Conversation article, if inflation persists, impacting consumer confidence.

The conflict’s economic ripple effects, per a 2025 J.P. Morgan analysis, threaten to reverse recent U.S. consumer price cooling.

What Lies Ahead for Oil Prices?

Oil’s $76.73 perch reflects cautious optimism, but the Iran-Israel conflict’s sixth day and Hormuz closure fears threaten a $120 spike. Trump’s rhetoric, Iranian retaliation risks, and tight U.S. inventories drive volatility, while Fed policy and OPEC’s stance shape demand.

Shipping disruptions and inflation risks loom large, with global economies bracing for impact. Will oil avoid a catastrophic surge, or will escalation unleash a supply shock?