What Will Be the Effect on Oil Prices If the USA and Iran Go Into Battle?
Last week, on 26th February, negotiators from the United States and Iran met for the third time in Geneva in an attempt to reach agreement over the decades-long nuclear dispute between the two countries. However, by 28th February, in operations codenamed Operation Epic Fury (USA) and Operation Roaring Lion (Israel), the United States and Israel jointly conducted military airstrikes in Iran. The initial assault reportedly resulted in the death of Iran’s Supreme Leader, Ayatollah Ali Khamenei, along with several other senior political and military figures.
Iran is currently subject to international sanctions, and approximately 90% of its crude oil exports are purchased by China. According to data released by Kpler Ltd, a global data and analytics company specialising in real-time intelligence for the energy, maritime and commodities markets, Iranian crude exports reached approximately 1.25 million barrels per day in January this year.
Much of this crude oil is transported via a network commonly known as the “Dark Fleet”*, a group of ageing oil tankers that employ deceptive practices to bypass international regulations, sanctions and safety standards.
*The Dark Fleet is a large clandestine network of ageing oil tankers, shell companies and maritime service providers operating outside international regulations to transport sanctioned oil, primarily from Iran, Russia and, until recently, Venezuela. Analysts estimate the fleet comprises approximately 1,470 tankers that use tactics such as disabling tracking systems, forging documentation and conducting ship-to-ship transfers in open waters to evade sanctions.
The so-called Shadow Fleet is critical to Iran’s economy. Analysts suggest it transports millions of barrels of oil daily to China, generating billions of dollars annually. The United States government claims that a significant proportion of these revenues supports Iran’s nuclear programme, with roughly half of the exports reportedly under the control of the Islamic Revolutionary Guard Corps (IRGC).
Even before the latest escalation, rising tensions had pushed crude oil prices to a six-month high. As of Monday 23rd February, Brent Crude Futures settled at $71.66 per barrel. Following the outbreak of war in the Middle East, prices have risen to approximately $79.37 per barrel, representing an increase of around 8.5%.
Gas prices have also surged. Data from the EU natural gas benchmark shows prices rising by approximately 40% since Friday, reportedly after Qatar suspended LNG production and associated operations in Mesaieed Industrial City and Ras Laffan Industrial City following Iranian drone strikes.
Elsewhere, airline shares have fallen amid the conflict. International Airlines Group (owner of British Airways) declined by 6.6%, while EasyJet fell by 3.9%. The FTSE 100 also slipped by 1.2%. As expected, traditional safe-haven assets such as gold surged to $5,390, with some analysts suggesting it could climb towards $6,500 amid war-related uncertainty and inflationary pressures in the United States.
As previously warned by experts, if diplomatic talks failed the greatest risk lay in the potential closure or blockade of the Strait of Hormuz by Iran. The strait, only 21 miles wide at its narrowest point, links the Arabian Sea to the Persian Gulf and is widely regarded as the backbone of global oil supply. A significant proportion of crude oil exports from Iraq, Qatar, Saudi Arabia and the United Arab Emirates pass through this route.
The strait is now effectively closed, placing shipments of crude oil, liquefied natural gas (LNG) and liquefied petroleum gas (LPG) at serious risk. More than USD 500 billion worth of oil and gas passes through the Strait of Hormuz annually, meaning any prolonged disruption could expose the global economy to severe instability.
In response, the United States has assembled its largest concentration of naval and air power in the region since the 2003 Iraq War. Approximately 14 warships are currently deployed, centred around two carrier strike groups. The USS Abraham Lincoln is operating in the Arabian Sea, while the USS Gerald R. Ford, the world’s largest aircraft carrier, has recently arrived at Souda Bay in Crete in the Eastern Mediterranean.
Supporting vessels reportedly include nine guided-missile destroyers and three littoral combat ships, positioned across the Arabian Sea off Oman, the Red Sea and the Mediterranean. This military build-up echoes President Trump’s warning last Monday that if Iran failed to reach a deal with Washington, it would be “a very bad day for that country and, very sadly, for its people”.
With the United States and Israel now engaged in open conflict with Iran, the consequences for crude oil prices could be severe. Millions of barrels of crude oil, refined products and feedstocks shipped through the Strait of Hormuz are now at risk. Analysts suggest prices could spike dramatically, potentially reaching $130 per barrel.
Shipping costs are also rising. In June 2025, when the United States previously launched strikes in Iran, supertanker rates surged to approximately $76,000 per day, an increase of around 12%, for vessels carrying two million barrels of crude from the Persian Gulf to China. Data from the Baltic Exchange in London showed this was the highest level since March 2023, adding as much as $1.40 per barrel to shipping costs.
However, analysts argue that a prolonged war would not serve the interests of either the United States or Iran. Oil exports are vital to the Iranian economy, while higher global oil prices would quickly translate into increased petrol prices at the pump in the United States. With mid-term elections approaching in November, sustained fuel price increases could carry significant political consequences for President Trump.
Nevertheless, with hostilities now underway, daily market data indicates that oil and gas prices continue to rise sharply, with potentially far-reaching implications for economies worldwide.
