Energy Markets on Edge, the Strait of Hormuz & Israel-Iran Tensions

• Brent +7% intraday; WTI +7.5% on Israeli strikes against Iranian nuclear sites.
• Strait of Hormuz supply-risk premium re-enters oil markets.
• Analysts warn of potential $120–130/barrel scenarios if escalation disrupts key transit lanes.
• Institutional portfolios face renewed inflation and energy risk exposure.

Israel-Iran Escalation

• In the early hours of 13 June 2025, Israeli forces launched targeted strikes on Iranian nuclear and missile sites under ‘Operation Rising Lion’, significantly escalating regional tensions. The Strait of Hormuz, a critical channel accounting for nearly 20% of global oil flows (18–19 million barrels/day),  now sits at the centre of market concern.
• Imagery from Tehran captured large fires at fuel depots following Israeli strikes against Iranian oil and gas facilities, adding further risk to both the Iranian economy and broader global energy markets.

Supply-Risk Premium Returns

• While there has been no physical disruption to Iranian oil exports, markets have aggressively repriced to reflect potential supply interruptions if hostilities escalate or shipping lanes are targeted.
• Several analysts warn that direct impacts on transit lanes or production infrastructure could drive higher crude prices, potentially toward the $120–130/barrel range. The Israeli air offensive has rattled broader risk assets, with equities retreating and renewed safe-haven demand driving gains in gold, the US dollar and the Swiss franc.

Market Implications

• Rising oil prices threaten to complicate the global inflation outlook, particularly as central banks already contend with the combined pressures of energy volatility, protectionist trade policies and slowing growth.
• Investors remain focused on the risk of potential disruption in this key shipping corridor. While closure of the Strait of Hormuz remains unlikely, given regional interdependencies and China’s vested interests, further escalation may trigger temporary supply bottlenecks and heightened price volatility.
• The Israel-Iran conflict has exposed Washington’s limited near-term levers to manage energy prices. With the US Strategic Petroleum Reserve significantly drawn down (~400mn barrels), options include further diplomatic engagement with Saudi Arabia or incremental SPR releases, though both carry political and market risks.
• Israel’s strike has also drawn attention to recent OPEC+ supply decisions. While some production increases were aligned with US inflation concerns, Saudi Arabia’s moves largely reflect internal quota management and strategic considerations. Riyadh remains cautious not to repeat 2018’s misstep of oversupplying markets into heightened geopolitical uncertainty.

Our Thoughts

• While volatility remains elevated, our base case assumes that a full closure of the Strait of Hormuz remains unlikely, given the significant economic interdependencies across the region and the potential collateral impact on key trading partners, including China and GCC states. Diplomatic backchannels remain active, and a negotiated outcome potentially brokered with U.S. involvement remains plausible. There is growing market expectation that Trump may seek to facilitate a ceasefire agreement between Israel and Iran to de-escalate tensions, preserving regional stability while avoiding further pressure on energy markets. At Cordoba Capital, we continue to monitor both geopolitical developments and price action closely, as market sentiment remains highly sensitive to any shift in diplomatic or military positioning.