​​Where is oil headed next? Assessing the outlook amid Israel-Iran conflict​

Geopolitical shock sends oil markets higher

Global oil markets surge as Israel-Iran tensions escalate, with Brent crude oil jumping over 13% amid fears of supply disruption through the Strait of Hormuz. WTI crude tests key resistance levels as geopolitical risk premiums return.

Global oil markets have been jolted by renewed hostilities between Israel and Iran, reigniting fears of a prolonged and destabilising confrontation in the Middle East. The most recent flashpoint involved an Israeli strike on Iranian nuclear infrastructure in mid-June 2025, prompting a sharp response from Tehran and sparking wider regional anxiety.

This is not just another geopolitical skirmish. The stakes are higher because both nations are regionally powerful, and unlike previous tensions involving proxies, this conflict directly involves two of the most militarily capable Middle Eastern states, just as was the case in 2024.

Strategic chokepoints under threat as crude surges

Strategic oil chokepoints are once again under threat, with the Strait of Hormuz — through which roughly 20% of global oil flows daily — lying at the heart of potential disruption. This waterway represents one of the world's most critical energy arteries.

The market reaction was immediate, with Brent crude oil surging by over 13% in the days following the initial attacks, reaching levels not seen since early 2025. This price spike reflects both supply concerns and the risk premium that markets apply during geopolitical uncertainty.

WTI crude oil price daily candlestick chart

Upside pressure should be maintained while the WTI crude oil price remains above its 200-day simple moving average (SMA) and Monday's low at $68.54 to $67.88 per barrel on a daily chart closing basis.

A rise above the current June spike high at $77.57 would likely push the January peak at $80.73 to the fore.

In case of no more oil supply getting through the Strait of Hormuz, were Iran to prevent this from happening, the October 2022 to September 2023 highs around the $95 mark may swiftly be revisited.

WTI crude oil price monthly candlestick chart

Historical precedent suggests caution on supply fears

Despite current fears, history offers context for assessing supply risks. Oil prices typically spike on conflict news, but sustained disruptions are rare unless infrastructure is directly targeted.

In 2019, drone attacks on Saudi oil facilities briefly took out 5% of global output — yet prices normalised within weeks once production was restored. During the Iraq War, Arab Spring, and Houthi attacks in Yemen, global production was largely maintained despite significant regional instability.

However, the Israel–Iran dynamic is more unpredictable. Should the Strait of Hormuz face blockage or targeted strikes on tankers, the consequences would be far more severe than localised production disruptions.

Wide price range potential across three scenarios

The potential price outcomes depend heavily on how the geopolitical situation evolves:

• In a de-escalation scenario where diplomacy prevails, WTI would likely return to the $68 to $64 range as risk premiums diminish.
• If the current standoff continues without tanker attacks, WTI could stabilise in the $76 to $68 range, reflecting an elevated but manageable risk premium.
• However, if escalation spreads to Gulf nations with the Strait of Hormuz targeted, Brent could surge to $95 or higher, representing a major supply shock.

Broader market implications emerge

The oil price surge creates ripple effects across asset classes. Energy equities, including Shell, BP, and ExxonMobil, could benefit from stronger cash flows if elevated prices are sustained.

Oil-sensitive currencies like the Canadian dollar and Norwegian krone typically outperform during energy price spikes.

Sustained high oil prices can complicate central bank rate decisions, especially in the US and UK, where energy costs could reignite inflation concerns just as monetary authorities consider policy easing.

OPEC+ response will prove crucial

Saudi Arabia and other Gulf producers maintain significant spare capacity that could be activated if Iranian supply faces disruption, though this requires these nations to remain uninvolved in any expanding conflict. US shale production flexibility could eventually provide additional supply if elevated prices prove sustainable over months rather than weeks.

Structural factors shape longer-term outlook

OPEC+ production policy remains key, with the cartel's discipline in maintaining output cuts providing underlying price support. However, decarbonisation efforts and the energy transition create questions about long-term demand growth.

Saudi Arabia's recent decision to increase oil output led to WTI dipping to the $56 region, around 30% lower than current levels of $73.96 (as of 19 June 2025).

Trading volatile energy markets requires careful positioning

The Israel–Iran conflict has reintroduced a major risk premium into oil markets. While actual supply disruption remains low-probability but high-impact, markets are likely to remain volatile.

Short-term traders should watch for military action and diplomatic developments, while long-term investors must weigh geopolitical risk against structural factors that will determine oil's longer-term trajectory.

Oil may spike further on negative headlines, but absent a full regional war or Strait of Hormuz shutdown, expect prices to gradually stabilise — albeit with heightened volatility.