Military buildup raises stakes for energy prices
Escalating tensions between the United States and Iran are reviving fears of a broader regional conflict that could jolt global energy markets and potentially spill over into the wider economy. With a significant U.S. military buildup underway in the Middle East, President Donald Trump indicated he will decide within days whether to authorize strikes against Iran.
Oil traders have responded swiftly. Crude prices have climbed more than 5% this week as markets factor in the possibility of military action. Analysts say uncertainty alone is enough to lift risk premiums across energy markets, particularly given Iran’s strategic position in global supply routes.
Strait of Hormuz at center of concern
The primary market anxiety centers on the Strait of Hormuz, a narrow maritime corridor through which roughly 14 million barrels per day of oil and condensates flowed in 2025, according to industry data. That volume represents about one third of worldwide seaborne oil exports. Much of the oil passing through the channel supplies major Asian economies, including China, India, Japan and South Korea.
Iran’s Revolutionary Guard recently conducted military exercises that temporarily restricted traffic through the strait, underscoring its ability to disrupt passage if tensions intensify. Energy strategists caution that even the threat of prolonged disruption could significantly elevate crude prices.
Potential economic fallout
In a worst-case scenario, a sustained closure of Hormuz would push oil prices above $100 per barrel, according to several analysts. Such a spike could weaken global demand and heighten recession risks, particularly if supply imbalances persist for an extended period.
Insurance constraints could compound disruption. Tanker operators may face higher premiums or outright refusals from insurers if hostilities make transit unsafe, amplifying supply constraints beyond the immediate physical threat.
Range of possible outcomes
Despite rising tensions, analysts note that full-scale war is not the only outcome under consideration. Limited or targeted action aimed at minimizing damage to oil infrastructure could blunt the lasting impact on supply.
Research from major financial institutions suggests that while a broader conflict could add $10 to $15 per barrel in short order, a contained strike may result in only temporary price spikes. In more moderate scenarios involving reduced Iranian exports, oil could rise several dollars per barrel without triggering a long-term supply shock.
Administration officials have publicly emphasized that current global oil supplies remain robust, implying that geopolitical leverage is higher than in previous energy crises.
Markets braced for volatility
For now, energy markets remain highly sensitive to political signals. The coming days could prove decisive in determining whether current price gains reflect short-term uncertainty or the start of a more profound supply disruption.
