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

​Geopolitical shock sends oil markets higher

​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 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.

​WTI crude oil price monthly candlestick chart 

​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 $95.00 mark may swiftly be revisited.

​Historical context suggests caution on supply disruption fears

​Despite current fears, history offers some context for assessing whether supply risks are real or exaggerated. 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 than previous Middle Eastern conflicts. Should the Strait of Hormuz face any actual blockage or targeted strikes on tankers, the consequences would be far more severe than localised production disruptions.

​The unique geography of the Strait, combined with the military capabilities of both nations involved, creates a scenario where actual supply disruption is more plausible than in many previous Middle Eastern conflicts that have generated oil price spikes.

​Scenario analysis suggests wide price range potential

​The potential price outcomes depend heavily on how the geopolitical situation evolves, with three primary scenarios offering different implications for oil prices.

​In a de-escalation scenario where diplomacy prevails and no attacks on infrastructure occur, WTI crude would likely return to the $68.00-$64.00 range as risk premiums diminish and supply concerns fade.

​If the current standoff continues with no resolution but no tanker attacks either, WTI could stabilise in the $76.00-$68.00 range, reflecting an elevated but manageable risk premium that markets can absorb over time.

​However, if escalation spreads to Gulf nations with the Strait of Hormuz targeted or Saudi facilities hit, Brent could surge to $95.00 or higher, representing a major supply shock that would ripple through global energy markets.

​These scenarios highlight the binary nature of current oil market risks, where outcomes could vary dramatically based on military and diplomatic developments that remain highly unpredictable.

​Market implications across asset classes

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

​Oil-sensitive currencies tend to rally with higher crude prices, with the Canadian dollar and Norwegian krone typically outperforming during energy price spikes as their economies benefit from improved terms of trade.

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

​The broader equity market impact remains mixed, with energy sector gains potentially offset by concerns about consumer spending and economic growth if high energy costs persist and begin to weigh on other sectors.

​OPEC+ dynamics and production response

​While geopolitical tensions dominate current headlines, the response from OPEC+ and other major producers will be crucial in determining whether supply shortfalls materialise or are quickly compensated.

​Saudi Arabia and other Gulf producers maintain significant spare capacity that could be activated if Iranian supply faces genuine disruption, though this would require these nations to remain uninvolved in any expanding conflict.

​The strategic petroleum reserve releases by major consuming nations represent another tool for managing supply shocks, though these emergency stocks provide only temporary relief rather than long-term supply replacement.

​US shale production flexibility, while less responsive to short-term price spikes than in previous cycles, could eventually provide additional supply if elevated prices prove sustainable over months rather than weeks.

​Long-term structural factors remain relevant

​Beyond immediate geopolitical concerns, longer-term structural factors continue to shape oil market dynamics. Decarbonisation efforts and the energy transition create questions about long-term demand growth that could limit how high prices can sustainably rise.

​OPEC+ production policy remains a key variable, with the cartel's discipline in maintaining output cuts providing underlying price support even as geopolitical premiums fluctuate based on news flow.

​Saudi Arabia’s recent decision to increase its oil output instead of maintaining tight supply suggested a future global oil supply surplus and led to the WTI oil price dipping to the $56.00 region, around 30% lower than current levels of $73.96 (as per 19/06/2025).

​Investment in new oil production capacity has been constrained in recent years, both due to ESG concerns and capital discipline following previous price cycles, potentially limiting the supply response to sustained higher prices.

​These structural factors suggest that even if current geopolitical tensions subside, oil prices may find support at higher levels than might have been expected in previous decades.

​Trading considerations for volatile oil markets

​For traders and investors looking to navigate the current oil market volatility, several approaches merit consideration given the binary nature of potential outcomes.

1. ​Research the geopolitical dynamics, supply chain vulnerabilities, and historical precedents to understand the range of potential scenarios and their implications.
2. ​Consider how your risk tolerance aligns with the volatility and binary outcomes typical of geopolitically-driven commodity markets.
3. ​Open an account with IG by visiting our website and completing the application process.
4. ​Access oil markets through our trading platform, including both Brent and WTI crude, as well as related energy products.
5. ​Implement robust risk management given the potential for sharp moves in either direction based on geopolitical developments.

​Spread betting and CFD trading provide flexible approaches for trading oil, allowing positions on both rising and falling prices while managing risk through guaranteed stops.

​The current oil market environment requires careful attention to both technical levels and fundamental developments, as news flow can quickly shift market dynamics and create opportunities for those positioned appropriately.

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

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

​In summary, 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 that creates both risks and opportunities for energy market participants.​​ 

 

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