The Iran war has triggered a global energy shock, disrupting oil and gas markets and causing price spikes. Brent crude oil prices have seen steep gains and dramatic fluctuations since the war began, reaching over $100 per barrel. Oil prices soared about 6% to their highest since 2024 on Tuesday, rising for a third session as the war against Iran widened, disrupting energy shipments from the Middle East and stoking fears of a prolonged conflict. Brent rose $4.70, or 6.1%, to $82.44 a barrel at 12:38 p.m. EST, and U.S. crude rose $4.43, or 6.2%, to $75.66. Brent was on track for its highest close since July 2024 and WTI for its highest since January 2025, while U.S. gasoline futures climbed about 4% to $2.47 a gallon, their highest since July 2024.
The Strait of Hormuz, a vital trade route for about 20% of the world's oil and gas, has been effectively shut down due to the conflict. 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. Tankers and container ships are avoiding the Strait of Hormuz after insurers cancelled coverage for vessels and global oil and gas shipping rates soared. Concerns increased after Iranian media reported that Iran will fire on any ship trying to pass through the Strait of Hormuz. 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.
The war has caused the largest supply disruption in the history of the global oil market, with up to 20 million barrels per day lost. Iran attacked Qatar's Ras Laffan natural gas terminal, wiping out 17% of Qatar's LNG export capacity, with repairs taking up to five years. 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 dropping in Iraq. The war has widened, with Iraq cutting production by nearly 1.5 million barrels a day, and cuts could more than double within days as the country runs out of storage space for crude it cannot export due to the crisis.
Europe is experiencing a second major energy crisis in recent years, reminiscent of the 2022 crisis after Russia's invasion of Ukraine. British wholesale gas prices climbed to 171p a therm after the Iran war began, the highest since 2022. The UK imports about 70% of its gas, making it vulnerable to price swings. Energy-intensive industries in Europe, such as steel and chemicals, are being hit hard by rising energy costs. The chemicals sector in Britain has seen production output fall by 60% since 2021, with at least 25 sites closing. European leaders are scrambling for short-term solutions to energy price spikes, similar to the response to the 2022 crisis.
The EU has reduced its reliance on Russian energy, with only 2% of oil imports now coming from Russia, and plans to end all Russian gas imports by next year. Before Russia's invasion of Ukraine, Russia supplied an estimated 55% of German natural gas imports. Europe is better prepared for this energy crisis than the last, with wind and solar overtaking fossil fuels in EU power generation last year.
Oil price shocks from the war could lead to global recessions and stagflation. Global leaders are releasing emergency oil reserves and taking other measures to ease oil prices, but these are insufficient to replace lost supplies. Asian countries are turning to coal as the war disrupts oil and gas shipments, risking increased emissions and slowed renewable energy transition.
The war has exposed global dependence on petrochemicals, which are made from oil and gas and used in many everyday products. Petrochemicals account for 15%-16% of global oil demand and are among the fastest-growing uses. The war has caused significant environmental damage, including pollution from burning oil and gas fields, with over 400 environmentally concerning incidents recorded.
Energy traders are facing logistical challenges and risks in the physical market due to the crisis. Citing the Strait of Hormuz, 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.
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. U.S.-operated energy assets in Iraq are at risk because they rely heavily on transit through the Strait of Hormuz.
According to The New York Times, Iranian officials said 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. Iran's 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. The report also suggested that Larijani's expanding role has reduced the visible influence of President Masoud Pezeshkian in day-to-day governance. 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.
According to Le Figaro, during nationwide protests, Khamenei was the target of an internal effort led by Rouhani to sideline him from crisis management. Le Figaro reported that Rouhani gathered 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 Le Figaro's account, 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.
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Key unknowns remain, including how long the Strait of Hormuz will remain effectively shut down and what measures are being taken to reopen it. The exact extent of environmental damage from the war, including long-term impacts on regional ecosystems, has not been fully assessed. It is unclear how the shift to coal in Asia will affect global emissions targets and renewable energy transitions. The specific short-term solutions European leaders are implementing to address the energy price spikes have not been detailed publicly. Furthermore, the specific contingency plans Iran has prepared for war with the U.S. or Israel, beyond the general mention of continuity scenarios, have not been disclosed.