US-Israeli War with Iran: Oil Prices, Global Impact, and Escalating Conflict

The conflict between the United States, Israel, and Iran, which began with the killing of Iranian Supreme Leader Ayatollah Ali Khamenei on February 28, 2026, has rapidly expanded, triggering significant volatility in global oil markets and raising concerns about a wider regional war. While initial reactions in energy markets were muted, prices have since surged due to threats to oil shipping through the Strait of Hormuz and strikes on Iranian energy infrastructure.

Escalation of Conflict and Rising Death Toll

The war began with a joint U.S.-Israeli strike that killed Ayatollah Ali Khamenei . Iran has responded with missile and drone attacks targeting Israel, U.S. Bases in the region, and Gulf nations. As of March 4, 2026, at least 50 people have been killed and over 300 injured in Lebanon due to Israeli strikes . The U.S. Embassy in Jordan has issued a shelter-in-place order . More than 1,200 Iranians and seven American service members have been killed , and the death toll continues to rise.

Oil Price Volatility and the Strait of Hormuz

Initially, oil prices remained relatively stable despite the outbreak of hostilities. However, Iran’s announcement that it would attack any ship passing through the Strait of Hormuz – a critical passage for global oil trade – caused prices to jump. By Sunday, March 2, 2026, the price of a barrel of oil climbed to $119.50, a nearly 30 percent increase from $92 on Friday afternoon . Prices have since fallen back to around $90, potentially due to President Trump’s comments suggesting the war is “very complete” and discussions among the G7 nations . However, President Trump later stated that “we haven’t won enough” and vowed to continue the conflict .

The number of ships passing through the Strait of Hormuz has decreased significantly, from a historical average of 138 ships per day to just single digits , disrupting the global energy supply. U.S. And Israeli strikes on Iranian energy infrastructure are further exacerbating these uncertainties.

Impact on Consumers and the Global Economy

The conflict is already impacting consumers, with the average price of gasoline in the U.S. Reaching $3.48 a gallon on March 3, 2026 – a nearly 17 percent increase since the start of the conflict . Potential broader economic consequences include increased travel costs, higher grocery prices, and rising utility bills.

U.S. Response and Potential Solutions

President Trump has announced that the U.S. Navy will begin escorting tankers through the Strait of Hormuz if necessary . Treasury Secretary Scott Bessent has suggested potentially lifting sanctions on some Russian oil to increase global supply . The White House is similarly considering intervention in oil-futures markets to stabilize prices, though no official announcement has been made.

Regional Impact and International Law

Israel is intensifying its strikes against Hezbollah in Lebanon . Canadian Prime Minister Mark Carney has suggested that the actions of the U.S. And Israel may be “inconsistent with international law” .