After a period of relative optimism following the signing of the memorandum of understanding between Iran and the United States on June 17, 2026, which led to optimism about ending military operations and reopening the Strait of Hormuz, tensions returned strongly at the beginning of this month. Iranian attacks on commercial vessels in the strait prompted a US military response and the revocation of the US decision to allow Iranian oil exports, raising fears of the collapse of the agreement and new disruptions in global energy supplies.

The Strait of Hormuz, the economic lifeline of the world and one of the most important chokepoints in the global oil market, is once again in the eye of the storm. Around 20% of global supplies pass through it, at a rate of 20 million barrels per day of crude oil and petroleum products, meaning any threat to it will immediately affect oil flows and prices on global exchanges.

The echo of the escalation and renewed fighting was not delayed and reverberated in oil markets. Brent crude rose to $87 per barrel, while West Texas Intermediate jumped to more than $80 per barrel. The number of ships passing through the strait dropped significantly, along with a rise in marine insurance and shipping costs that had fallen after optimism about the agreement. Prices had fallen again, but the new escalation brought them back up, especially with the US cancellation of the temporary license for Iranian oil.

Oil markets are heading toward several possible scenarios. The first is a limited escalation scenario, which is currently the most likely, where Washington pressures Iran to return to the negotiating table by intensifying strikes, especially on energy sources, oil fields, and facilities that form the backbone of Iran's economy. The continuation of these strikes and Iranian responses keeps risks high, supporting prices in the range of $85 per barrel. This could lead to partial disruptions in navigation, increased insurance and shipping costs, and higher production and transport costs.

Another possible scenario is a partial or complete closure of the strait, which could lead to a supply shortage of 8-10 million barrels per day. In this case, prices are expected to rise to the triple-digit level, or $100 per barrel, and may exceed this level especially given the difficulty of compensation via alternative routes such as the Saudi East-West pipeline and the UAE pipeline via Fujairah, which have limited capacity. Markets have witnessed this scenario before at the beginning of the conflict and it was seen on the ground.

Markets outside the region, such as the United States, Brazil, and Russia, may benefit from higher prices, but they may face challenges in increasing production quickly. The situation may lead consumer countries, especially the G7 and other nations, to draw from strategic reserves. This decision would increase pressure on strategic stockpiles that are originally intended for emergencies, not for curbing price rises and influencing markets.

The expansion of the conflict could lead to broader economic repercussions beyond oil markets, transferring higher oil prices to increased transport, fuel, and consumer goods costs. It could lead to a rise in global inflation, especially in importing countries. Meanwhile, we may see further slowing of economic growth; some reports have warned of global growth slowing to below 2% in the event of a prolonged disruption, with risks of recession in advanced and emerging economies.

As for financial markets, higher oil prices will support the dollar, raise bond yields, increase volatility in stocks—especially in the transport, industrial, and energy sectors—and drive investors toward gold as a safe haven.

Some may wonder about the winners and losers from the escalation scenario, so the answer is relative. The United States may benefit relatively as a net exporter, while countries like China face rising oil prices. Other developing countries will suffer from higher import bills and food security risks due to rising prices of oil and petrochemical products, most importantly fertilizers.

As for future prospects in oil markets, they depend heavily on the outcomes of ongoing negotiations despite tensions. If diplomatic efforts succeed in calming the situation and fully reopening the strait, prices could gradually decline. However, if the escalation around the Strait of Hormuz continues, high volatility is expected with strong possibilities of oil prices rising to triple-digit levels.

Strategic expert in energy affairs