Oil Prices Surge as U.S.-Israel Attack on Iran Raises Supply Disruption Fears

The recent U.S.-Israeli attack on Iran has sent shockwaves through the oil market, raising concerns about potential supply disruptions and a possible global economic recession. The conflict has reignited fears surrounding the Strait of Hormuz, a critical waterway for global oil trade, and prompted a swift response from traders.

The Strait of Hormuz: A Critical Chokepoint

Approximately one-third of all seaborne oil exports and 20% of liquid natural gas exports pass through the Strait of Hormuz, with the majority destined for major Asian economies like China . Iran’s strategic location along the strait gives it the potential to disrupt oil flows, a threat it may leverage in retaliation for the attack . A prolonged closure of the strait could have severe consequences for the global economy, potentially triggering a recession.

Immediate Market Reaction

Crude oil future prices are expected to rise by $5 to $7 per barrel when trading opens on Sunday, February 29, 2026, as the market factors in the increased risk . On Friday, February 28, 2026, Brent crude prices settled at $72.48 a barrel, up $1.73 (2.45%), while U.S. West Texas Intermediate crude finished at $67.02 a barrel, up $1.81 (2.78%) . Some analysts predict oil prices could spike above $100 per barrel if Iran attempts to disrupt traffic through the Strait of Hormuz .

Broader Economic Implications

The conflict’s impact will be felt most acutely through rising oil prices, contributing to inflationary pressures . Higher energy costs will increase the cost of producing and transporting goods, impacting consumers worldwide. Net energy importers in Asia and Europe, including the UK, are expected to be particularly vulnerable . The U.S., with its shale oil production and strategic petroleum reserve, is better positioned to mitigate the impact, though prolonged high prices could influence Federal Reserve interest rate decisions .

Oversupply and Shale Oil’s Role

Despite the heightened tensions, the oil market is currently oversupplied . Increased U.S. Shale oil production has bolstered the country’s influence in the global oil market, potentially limiting the economic fallout from the conflict .

A Negative Supply Shock

Rising oil prices represent a “negative supply shock,” increasing production costs for businesses and contributing to inflation . For example, a $10 increase in the price of oil could raise gasoline prices for U.S. Drivers by approximately 25 cents per gallon, and around 10 cents per liter in Australia .