Israel-Iran escalating tensions spark global oil shock, raise fears of fresh inflation wave

Global financial markets and energy supply chains have been rattled by a sudden escalation in Central Asia tensions, as Israel launched strikes on Iranian military and nuclear sites, triggering retaliatory drone attacks from Tehran.

The recent fallout has revived fears of a global inflation wave, with oil prices surging and trade disruptions looming.

The price of the global oil benchmark, Brent crude, surged as much as 13 per cent on June 13, the steepest single-day jump since Russia’s 2022 invasion of Ukraine.

Though prices eased slightly by market close, Brent still ended the day over 7 per cent higher, trading at $74.23 a barrel. Analysts warn the rally may be just the beginning if the conflict widens or if key oil infrastructure is hit.

Energy traders are closely monitoring the Strait of Hormuz—a narrow but vital waterway through which 20–25 per cent of global oil supply and much of Qatar’s liquefied natural gas (LNG) pass.

While shipping continues through the strait for now, the growing conflict has increased the risk of disruption. Iran, OPEC’s third-largest producer, pumps roughly three million barrels of oil per day—approximately 3 per cent of global output—and has in the past threatened to close the Strait in response to Western actions.

“If the Strait of Hormuz is blocked, even temporarily, we’re looking at the biggest oil shock of all time,” Matt Gertken, chief geopolitical strategist at BCA Research, told Al Jazeera.

The International Energy Agency (IEA) has said it stands ready to release the 1.2 billion barrels of emergency reserves to stabilise supply. But OPEC Secretary-General Haitham al-Ghais criticised the statement, warning that it could trigger unnecessary panic.

IMF, Analysts warn of ripple effects

The International Monetary Fund (IMF) estimates that a 10 per cent rise in oil prices could increase global inflation by 0.4 percentage points and reduce global GDP growth by 0.15 percentage points.

Traders are now pricing in a potential $20-40 spike in oil prices if the conflict escalates, particularly if Iran targets production facilities in Iraq or disrupts shipping lanes.

For countries like India, which imports over 80 per cent of its crude oil needs, the stakes are especially high. A rise in oil prices directly feeds into higher fuel, transport, and manufacturing costs, raising inflation and weakening the rupee. This could widen India’s current account deficit and dampen foreign investment sentiment.

Markets slide, safe havens surge

Global equities reacted sharply to the news. Japan’s Nikkei fell 0.9 per cent, the UK’s FTSE 100 closed 0.39 per cent lower, and US stocks tumbled—with the Dow Jones Industrial Average dropping 1.79 per cent and the S&P 500 down 0.69 per cent.

Meanwhile, gold surged 1.2 per cent to $3,423.30 an ounce, its highest level in two months, as investors sought refuge in traditional safe havens like gold and the Swiss franc.

Analysts have warned that if Iranian production is disrupted, oil could reach $100 per barrel. However, they noted that such a spike may encourage other producers to ramp up supply, limiting the long-term inflationary impact.

Some airlines have suspended flights to Tel Aviv and Tehran, while merchant ships are proceeding with caution through the Strait of Hormuz. Countries like Greece and the UK have issued advisories for vessels to avoid high-risk waters, including the Gulf of Aden.

With geopolitical tensions escalating and oil markets on edge, the world may be entering a new phase of energy insecurity and economic fragility—one where supply shocks, inflation risks, and geopolitical brinkmanship are closely intertwined.