US attacks Iranian nuclear sites: What lies ahead as geopolitical tensions rise

On June 22, the United States launched airstrikes on Iran’s key nuclear facilities, marking another escalation in a tense, 10-day-long conflict involving Israel and Iran. The strikes, which targeted Iran’s uranium enrichment sites at Fordow, Natanz, and Esfahan, seem to have far-reaching consequences for global oil markets as the world witnesses a significant shift in the geopolitical landscape.

The US attack follows days of mounting speculation about whether the Donald Trump-led administration would intervene in the conflict between Israel and Iran. While Israel had already been bombing Iranian sites for over a week, the US airstrikes have taken the conflict to a new level. Experts warn that this could disrupt not only the regional balance of power but also the global oil supply chain, as Iran is a key oil exporter in West Asia.

For years, the Strait of Hormuz—a narrow waterway between Oman and Iran—has been a focal point of geopolitical tensions. This vital chokepoint facilitates the transit of about 20 per cent of the world’s crude oil, making any potential disruption here a major concern for oil-dependent economies worldwide.

Oil prices surge as a direct consequence of the conflict

Following the US strikes, oil prices have already begun to show signs of volatility, with Brent Crude futures surging by 11 per cent over the past week.

On June 22, as the markets opened, prices were hovering around $80 per barrel, fuelled by the uncertainty surrounding the conflict and the potential for further disruption. Analysts believe this is just the beginning, with prices expected to rise even more if the conflict continues to intensify.

A supply disruption, particularly a blockage of the Strait of Hormuz, would have catastrophic effects on global oil prices. Already, analysts warn that crude oil prices could rise by 15 per cent to 20 per cent if the conflict results in a daily loss of 1.1 million barrels in production.

More severe disruptions could push Brent crude prices above $90 per barrel or even $100 per barrel if Iran retaliates by targeting oil infrastructure or closing off key shipping lanes.

Global oil supply faces a murky situation

The global oil market is already in a precarious position, with OPEC+ planning a production hike in July, increasing output by 4.11 million barrels per day. Despite this, analysts remain concerned that these measures may not be sufficient to cushion the shock of an escalation in the Gulf.

Given that Iran is the third-largest member of OPEC+, the loss of its oil exports could exacerbate supply shortages, leading to even higher prices.

Though some analysts believe that global supply can be stabilised through increased output from other OPEC members, the region’s fragile geopolitical situation makes this approach uncertain.

Saudi Arabia, the UAE, and Kuwait, among others, also rely on the Strait of Hormuz for shipping their crude, and any serious disruption could lead to further instability in the region.

India’s vulnerability as an oil-dependent economy at risk

For India, the stakes are particularly high. The country relies heavily on oil imports from West Asia, with around 40 per cent of its oil and over 50 per cent of its LNG transiting through the Strait of Hormuz.

If the waterway is blocked, India could face significant economic consequences, including soaring fuel prices and inflation.

India consumes approximately 5.5 million barrels of oil per day, with 1.5 million barrels passing through the Strait. The potential disruption of this critical shipping lane could push oil prices much higher, further adding to inflationary pressures in the country.

According to experts, any blockade of the Strait would likely push India’s crude oil costs higher, which in turn would affect the country’s GDP by around 0.5 per cent for every $10 increase in crude prices.

The country’s oil marketing companies, such as HPCL, BPCL, and Indian Oil, would feel the brunt of this price spike, as would sectors like aviation, paint manufacturers, and tyre companies that rely on oil products. This could also lead to a potential slowdown in India’s economic growth, particularly in the face of rising inflation.

To mitigate these risks, India’s Petroleum Minister, Hardeep Puri, has assured that the country is diversifying its crude oil sources. India plans to cut refined product exports and explore alternative suppliers if the Strait is blocked.

Puri emphasised, “We have enough diversified supplies of crude, and even if there were to be a disruption, we can source it from alternative suppliers.”

Iran’s threat to close the Strait: An existential move?

One of the most significant threats arising from this conflict is Iran’s repeated warnings that it may close the Strait of Hormuz in retaliation for US and Israeli military actions. While Iran has made similar threats in the past, it has never followed through, as doing so would also harm its own oil exports.

However, the current situation is different. With the US now directly involved in the conflict, the risk of an Iranian retaliation is higher than ever. Experts believe that if Iran does take such an extreme step, it could severely disrupt global oil flows, particularly for countries like India and China, which are major importers of Iranian oil.

While closing the Strait would certainly hurt global oil supply, it could also backfire on Iran, as the country depends on this route for its own oil exports. China, Iran’s largest oil trading partner, is unlikely to stand by as its oil shipments are affected. China’s influence in this situation could pressure Iran to reconsider any drastic actions.

Fragile peace or an all-out oil war?

As the conflict between Israel and Iran escalates, oil markets remain on edge. If the situation devolves into an all-out confrontation, the consequences for the global economy could be severe.

For now, experts suggest that the geopolitical risk premium on oil will remain high, and the global oil market will have to navigate a delicate balance between supply disruptions and geopolitical manoeuvring.

As the situation develops, much will depend on how quickly Iran decides to retaliate, whether the US will escalate its involvement, and how OPEC+ members respond to the changing supply dynamics.