Oil and gas prices spiked sharply after the Iran war began, driven by the shutdown of the Strait of Hormuz. Brent crude registered its steepest one-month gains and some of the most dramatic daily price fluctuations ever recorded since the conflict started. On Tuesday, oil prices soared about 6% to their highest since 2024, rising for a third session as the war widened, disrupting energy shipments from the Middle East and stoking fears of a prolonged conflict. Specifically, Brent rose $4.70, or 6.1%, to $82.44 a barrel, and U.S. crude rose $4.43, or 6.2%, to $75.66, with Brent on track for its highest close since July 2024 and WTI for its highest since January 2025.
This price surge stems from a critical disruption of global oil and gas flows. Iran effectively closed off the Strait of Hormuz, a transit point for a fifth of the world's oil, causing the loss of 20 million barrels of oil a day. Before the war, roughly 15 million barrels of crude oil and 5 million barrels of oil products passed daily through the strait, about 20% of global oil consumption. Iran has responded with strikes against energy infrastructure in Gulf countries and tankers in the Strait of Hormuz, through which a fifth of the world's oil and liquefied natural gas typically passes. Concerns increased after Iranian media reported that Iran will fire on any ship trying to pass through the Strait of Hormuz, leading tankers and container ships to avoid the area after insurers cancelled coverage for vessels and global shipping rates soared.
The conflict has caused severe impacts on specific energy infrastructure and forced production cuts. Since the start of attacks, oil and gas infrastructure in several countries has shut because of damage or as a precaution, including Qatar stopping LNG production, Israel stopping production at some gas fields, Saudi Arabia shutting its biggest refinery, and output in Iraq dropping. Iran hit Qatar's Ras Laffan natural gas terminal, wiping out 17% of Qatar's LNG export capacity, with repairs taking up to five years. Iraq has cut production by nearly 1.5 million barrels a day, and the cuts could more than double within days as the country runs out of storage space for crude it cannot export due to the crisis.
These disruptions have translated into spiking energy prices with direct economic fallout. Brent crude oil climbed to $105.32 per barrel, up from roughly $70 before the war began. U.S. gasoline futures climbed about 4% to $2.47 a gallon, their highest since July 2024. Urea prices are up 50% since the war and ammonia 20% due to fertilizer shortages. The economic fallout from the Iran conflict is 'very damaging' for energy-intensive companies like Somers Forge, with energy costs rising from a fifth to a higher proportion of manufacturing costs.
U.S. and Israeli air attacks were projected to last four to five weeks but could go on longer.
The war has exposed deep vulnerability in the global economy due to dependence on fossil fuels and petrochemicals. Petrochemicals account for 15%-16% of oil demand and are among the fastest-growing uses. U.S. and Israeli attacks on Iran have driven up prices, darkened the economic outlook, and forced developing countries to ration fuel. The conflict has also unleashed pollutants that threaten agriculture, drinking water, and health, with over 400 environmentally concerning incidents recorded, including black rain falling near Tehran due to oil infrastructure set ablaze, containing soot, ash, and toxic chemicals.
Regional and global responses to the energy crisis are unfolding. Global leaders released 400 million barrels of emergency oil reserves, the largest volume in history, to ease oil prices. Citing the Strait of Hormuz closure, India and Indonesia said they were seeking alternative energy supplies. In China, supply disruptions were causing some refineries to shut or push ahead maintenance plans. Asian countries are turning to coal as the Iran war disrupts oil and gas shipments, risking worsened smog and increased emissions, with India burning more coal to meet higher summer demand of 270 gigawatts. Saudi oil giant Aramco is attempting to reroute some crude exports to the Red Sea to bypass the Strait of Hormuz where the risk of attacks has slowed shipping to a near halt.
Europe is experiencing a renewed energy crisis, with the knock-on effects of the conflict awakening ghosts of past crises that shook the European Union. The continent is experiencing deep energy-linked frustration again, with leaders panicking over prices and scrambling for short-term solutions, similar to the crisis after Russia's invasion of Ukraine. However, Europe is better prepared for this energy crisis than the last, with wind and solar overtaking fossil fuels in EU power generation last year. The EU now only gets 2% of its oil imports from Russia, flowing to Hungary and Slovakia alone, and plans to end all Russian gas imports including LNG by next year, a stark contrast to before Russia's invasion of Ukraine when Russia supplied an estimated 55% of German natural gas imports. Shortages could hit Europe this month, according to Shell.
The UK faces specific energy vulnerability and industrial impact. The UK imports about 70% of its gas, leaving it vulnerable to price swings. British wholesale gas prices climbed as high as 171p a therm after the invasion began, up from 78p a therm at the end of February. Somers Forge's monthly gas bill has soared from £150,000 to as high as £250,000 based on recent prices. Production output in the UK chemicals industry has fallen by 60% since 2021, with at least 25 sites closing.
The U.S. was considering oil tanker insurance support.
Geopolitical warnings link the Iran war to the conflict in Ukraine and Russia's position. The Swedish Armed Forces Chief warns that a U.S. war in Iran could have consequences for Ukraine. Rising oil prices could lead to Russia's war chest being replenished.
Political reactions and market-moving statements are influencing the situation. Donald Trump's 'go get your own oil' comments sent prices to their highest level since the start of the US-Israel attack on Iran. EU officials have begun unwinding key parts of the Green Deal, prioritizing competitiveness over climate policy.
Military and diplomatic tensions between Iran and the U.S. remain high. Heightened tensions exist between Iran and the United States, with indirect talks ongoing and President Donald Trump warning that military strikes remain an option if diplomacy fails. The United States has expanded its military presence in the region.
Iran has prepared internal contingency planning for leadership continuity. The New York Times cited Iranian officials as saying Tehran has prepared contingency plans in case of war with the United States or Israel, including scenarios where senior leaders like Supreme Leader Ali Khamenei could be killed. The contingency planning is designed to ensure continuity of the Islamic Republic under extreme circumstances, with senior figures like security chief Larijani, parliament speaker Mohammad Bagher Ghalibaf, and former president Hassan Rouhani named as part of that structure. Following the 12-day war with Israel, Khamenei appointed Larijani as secretary of the Supreme National Security Council, despite the Guardian Council previously disqualifying him from running in the presidential election.
Alleged internal power struggles and media reports in Iran suggest political maneuvering. Larijani's expanding role has reduced the visible influence of President Masoud Pezeshkian in day-to-day governance. Le Figaro published an account alleging that during nationwide protests, Khamenei was the target of an internal effort led by Rouhani to sideline him from crisis management, gathering political figures including former foreign minister Mohammad Javad Zarif, clerics from Qom, and individuals linked to the Revolutionary Guards to discuss an alternative leadership arrangement. Le Figaro said the effort ultimately failed, partly because Larijani did not support the initiative. Rouhani's office rejected the Le Figaro account outright, describing it as a US-Israeli fabrication aimed at creating doubt and concern in Iranian public opinion. Iranian media widely republished the New York Times and Le Figaro reports but mostly avoided detailed analysis. The news outlet Eghtesad24 suggested the New York Times report portrays Larijani as a crisis manager operating across multiple arenas, from nuclear diplomacy to regional strategy and wartime planning.
Key unknowns persist in this volatile situation. The exact timeline for repairs to Qatar's Ras Laffan LNG terminal and the full impact on global LNG supply remain unclear, with estimates suggesting up to five years. How long the Strait of Hormuz will remain effectively closed and the criteria for reopening are not confirmed, though Iranian threats have halted most traffic. The total economic damage to global industries and specific countries from the energy price spikes has not been quantified. The outcome of indirect talks between Iran and the United States and whether military strikes will be avoided is uncertain, with Trump maintaining military options. What specific contingency plans Iran has prepared for war with the U.S. or Israel, beyond general continuity structures, has not been publicly detailed.