Escalation between Iran and Israel: consequences for oil and the global economy

Since the 1979 Islamic Revolution, Iran and Israel have maintained a deeply hostile relationship. The new Iranian regime broke off diplomatic relations with Israel, which it does not recognize as a state and considers illegitimate.

Table of contents

1. Introduction: How did we get into this situation?   

2. Effects on oil prices

3. Possible scenarios from here 

4. How these crises affect the global economy

5. Summary table

   
   

   Introduction: How did we get into this situation between Iran and Israel? 

   
   

   Since then, the link between the two countries has been marked by indirect confrontations, covert operationssabotage and a war of regional influence. Iran has backed openly anti-Zionist openly anti-Zionist groups such as Hezbollah in Lebanon, the Houthis in Yemen and Hamas in Gaza, while Israel has led international efforts to curb Iranian nuclear development, fearing that it could lead to atomic weaponry. The ideological, religious and geopolitical undercurrents make each confrontation a serious threat to the stability of the Middle East.

   
   

   

   Ongoing tensions have created an unsustainable environment between Iran and Israel.

   
   

   On June 13, 2025, tension escalated to a new level following an Israeli airstrike on nuclear facilities and missile bases. nuclear facilities and missile bases in Iran. in Iran. Tehran's response was immediate: it launched missiles towards the Tel Aviv metropolitan area and issued threats to close the Strait of Hormuz, an artery through which approximately 25% of the world's oil transits. As a reaction, the price of Brent crude rose by 7% in a single day, and analysts warn that, if the situation escalates, the barrel could exceed 90 dollars in the short term.

   
   

   Effects on oil prices

   
   

   The Israeli attack on Iranian military installations on June 13, 2025 and Tehran's subsequent threat to close the Strait of Hormuz had an immediate impact on the energy markets. The price of Brent crude oil rose by 7% in a matter of hours in a matter of hours, topping $89 per barrel, while WTI rebounded by more than 6 %. This reaction reflects not so much an actual physical shortage, but the perception of risk: about a quarter of the world's oil transits through Hormuz, and any credible threat of disruption triggers risk premiums on futures contracts. In addition, marine insurance rates for ships crossing the area have increased, which has a direct impact on the cost of transportation.

   
   

   This pattern has already been seen in past crises in the region, such as the Iran-Iraq war in the 1980s, Iraq's invasion of Kuwait in 1990 or the civil war in Syria; and in the most serious one, the 1973 oil crisis after the Yom Kippur War, when the Arab embargo quadrupled the price of crude oil in a matter of months, marking a turning point in energy geopolitics. Even without real blockades, the mere threat over Hormuz usually causes rises of 5% to 15% in a matter of days.

   
   

   Possible scenarios from here

   
   

   The evolution of the Iran-Israel conflict will determine not only regional stability, but also the behavior of energy markets. energy markets and the global economy. and the global economy. Although the situation is highly uncertain, several plausible scenarios can be envisaged.

   
   

   The first and most desirable is diplomatic de-escalation. Through the intervention of international actors such as the United States or the UN, a temporary agreement could be reached that would reduce hostilities and stabilize the region. and stabilize the region. In this case, oil prices could partially recede, as the risk of a supply disruption would be lower and market volatility would moderate.

   
   

   However, a less optimistic scenario is regional escalation. If attacks multiply, and even groups allied to Iran such as Hezbollah in Lebanon enter directly into the conflict, the risk of real disruptions in the flow of oil would increase considerably. The Strait of Hormuz, through which some 25 about 25% of the world's oil flows through the Strait of Hormuzcould suffer partial blockades or attacks on ships. attacks on shipsThis would raise the price of crude oil to over 100 dollars a barrel and make energy, food and transport globally more expensive.

   
   

   

   Conflicts are reaching extreme levels that could make the situation even worse in the short term.

   
   

   In an even less optimistic scenario, an all-out war could be triggered between Iran and Israel, involving severe and lasting instability in the Middle East. In this case, the United States would likely intervene militarily to protect its interests and ensure free passage through Hormuz. Although unlikely, a global global escalation could occur if other actors such as North Korea or insurgent groups in the region decide to become actively involved. China and Russia, which are not formal allies of Iran but maintain important commercial and strategic interests with Tehran, could offer diplomatic support or indirect backing. This could lead to a regional war with active international intervention (proxy war) similar to what happened in Syria, rather than a Third World War, which would require the opening of more fronts in other regions of the world.

   
   

   Each of these scenarios involves increasing risks to global energy and economic stability. Therefore, in purely economic terms, a diplomatic de-escalation would be desirable. diplomatic de-escalation to reduce uncertainty and stabilize the markets. However, with the information available so far, it is difficult to anticipate whether such de-escalation can be achieved or whether the conflict will continue to escalate in the coming months.

   
   

   How these crises affect the global economy

   
   

   Crises in oil-producing areas, such as the current one between Iran and Israel, have a direct impact on the world economy and on people's daily lives. The rising oil prices make gasoline, electricity and food makes gasoline, electricity and food more expensive, driving up inflation and reducing purchasing power.

   
   

   Rising prices and reduced purchasing power can lead to a drop in consumption, which in turn generates a slowdown in economic activity. However, prices continue to rise due to high energy costs, which keeps inflation high. This combination, coupled with the weak dollar and rising U.S. public debt, creates the "economic storm". This combination, coupled with a weak dollar and rising U.S. public debt, creates the "perfect storm" for possible stagflation, a situation in which high inflation, low economic growth and high unemployment coexist, making recovery very difficult. Energy-importing countries such as Europe, India or Japan suffer the most, and for developing nations with high energy subsidies, the situation may be even more serious.

   
   

   In addition, uncertainty in financial markets reduces investment and increases volatility, which negatively affects the global economy. In 2022, following the Russian invasion of Ukraine, the rise in oil prices contributed to global inflation of 8.7%, according to the IMFaccording to the IMF, showing the extent of such shocks.

   
   

   Conclusion

   
   

   Instability in the Middle East is nothing new; for more than a hundred years this region has been the scene of political tensions and political tensionsconflicts and rivalries. Precisely because these tensions occur over some of the world's largest oil fields, any crisis or conflict in the area has a direct and significant impact on the global economy.

   
   

   This reality underscores the importance of implementing energy independence and diversification policies, including the promotion of renewable energies, nuclear energy and hydrogen, in the event that this technology is fully developed, in order to reduce vulnerability to the effects of climate change. reduce vulnerability to these external shocks and ensure a more stable and sustainable energy supply.

   
   

   Moreover, in these contexts of uncertainty and volatility, instability generates opportunities for economic or political gain. for economic or political gain.. While the average citizen in other parts of the world sees his or her shopping basket rise in price, the citizen of the affected region suffers the direct consequences of these conflicts. This makes it all the more necessary to seek multilateral solutions that promote long-term stability and energy security for the benefit of the global economy and society at large.

   
   

   Summary table 

   
   

Introduction: How did we get into this situation?	-A war of regional influence. -Escalation of tensions.
Effects on oil prices	-Impact on energy markets. -Previous crises in the region.
Possible scenarios from here	-An uncertain situation. -The most pessimistic scenario.
How these crises affect the global economy	-The increase in the price of oil. -The weakness of the dollar and the increase in public debt.

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