The headlines have been dominated lately by one thing: rising tensions in the Middle East and the looming question of what will come next. The primary concern is that the exchange of attacks between Iran and Israel could trigger a sharp rise in oil prices, especially if Iran decides to block the Strait of Hormuz.
Around 30% of the world's shipments of liquefied natural gas and up to 20% of the world's oil exports pass through this strait. Up to 20 million barrels of oil are transported through it every day, about one-fifth of the world's total supply. Thus, any disruption at this point will trigger energy prices and hit the S&P 500 index.
In such a scenario, some estimate oil prices could reach $120 per barrel, while others expect a $200 mark. For now, though, despite the situation remaining tense, oil prices have pulled back after an initial spike, following reports that Iran is seeking to ease tensions and resume talks on its nuclear program.
Another reason traders are not panicking is that any disruption in the Strait of Hormuz would also hurt Iran, which relies heavily on this route for its imports and oil exports. Moreover, a serious disruption could draw in more global players, probably not in support of Tehran. So, it’s unlikely they’d take such a move.
In addition, the IEA’s latest forecast expects global oil production to reach 104.9 million barrels per day in 2025, up 1.1 million from 2024, and 106 million in 2026. Meanwhile, demand is projected at 103.76 million in 2025 and 104.5 million in 2026, suggesting a surplus of 1.1 million barrels per day in 2025 and 1.5 million in 2026.
In short, despite the ongoing tensions between Iran and Israel, markets don’t seem to believe the conflict will seriously disrupt the global oil supply. The problem, of course, is that things can escalate fast. What seemed unlikely yesterday can quickly turn into reality, hitting global markets hard, including the S&P 500.
Take this, for example: if Israel were to strike all of Iran’s oil terminals, oil prices could easily surge to $80–90 a barrel or higher. Still, Morgan Stanley raised its Brent forecast for Q3 just by $10 to $67.50 per barrel on the back of rising geopolitical risk — yet even that revised figure points to lower prices overall.
That said, if the conflict deepens and energy prices surge — not just briefly, but for a sustained period — it could trigger a new wave of global inflation and sometimes tip weaker economies into crisis. For now, though, markets aren’t pricing in that worst-case scenario and continue to buy the dips.
