Israel-Iran Conflict Could Add $10 Risk Premium to Oil Prices

The Israel-Iran conflict, escalating into its seventh day as of June 20, 2025, has injected significant volatility into global oil markets, with a geopolitical risk premium of approximately $10 per barrel already factored into current prices. Brent crude futures have risen to $77.58 per barrel, a 2.88% increase, while West Texas Intermediate (WTI) is trading at $73.20, reflecting a nearly 3% jump. The surge follows intensified military actions, including Israeli airstrikes on Iranian nuclear facilities in Natanz and Arak and Iran’s retaliatory missile strikes on Israeli targets, including a hospital.

The primary concern for oil markets centers on the Strait of Hormuz, a critical chokepoint through which 20–25% of global oil (approximately 18–21 million barrels per day) and 30% of natural gas shipments flow. A potential closure or disruption of this waterway could lead to catastrophic supply shocks. Analysts at JP Morgan estimate that a full closure of the Strait could drive oil prices to $120–$130 per barrel, while Goldman Sachs suggests a risk premium of $10 is justified, with Brent potentially exceeding $90 if disruptions widen. Citibank warns that a loss of 1.1 million barrels per day of Iranian exports could push Brent prices 15–20% higher than pre-conflict levels.

Despite no major disruptions to Iranian oil exports yet, tanker rates through the Strait have surged by nearly 60% due to heightened risks, compounded by a recent collision of two tankers south of the Strait and electronic interference affecting navigation. Shell’s CEO, Wael Sawan, emphasized the Strait’s role as the “artery through which the world’s energy flows,” noting that a blockage could have a “huge impact on global trade.” Iran’s threats to close the Strait, though considered unlikely by some analysts due to potential U.S. retaliation, remain a critical risk factor.

The conflict’s escalation has broader economic implications. For oil-importing nations like India and China, which rely heavily on Middle Eastern oil, a prolonged disruption could spike fuel costs, with ClearView Energy Partners estimating a $10 crude price increase translates to a 7-cent-per-liter rise in petrol prices. A full Strait closure could disrupt 12–15% of global oil supply, potentially pushing prices toward $100 or higher. Conversely, a de-escalation through diplomacy, such as a U.S.-Iran nuclear deal or ceasefire, could erase the risk premium, stabilizing WTI at $68–$70 and Brent around $70, as the market is currently well-supplied.

U.S. involvement remains a wildcard. President Trump’s call for Iran’s “unconditional surrender” and speculation about U.S. military action have heightened market uncertainty. Analysts at RBC Capital note that direct U.S. entry could trigger attacks on tankers or energy infrastructure, further elevating prices. However, DBRS Morningstar suggests any price surge may be temporary, as higher oil prices could dampen global demand, leading to a cyclical decline if tensions ease.

For now, markets remain on edge, with investors monitoring the Strait of Hormuz and diplomatic developments closely. The conflict’s trajectory—whether toward escalation or resolution—will dictate whether oil prices stabilize or skyrocket, with profound implications for global economies.