Oil & gas price uptick and vessel rerouting as Israel-Iran conflict keeps markets on edge

A spike in crude oil prices and tweaks to ships’ regular routes are some of the key indicators of uncertainty enveloping energy and shipping markets in the wake of Israel’s attack on Iran, as both countries turn off their giant offshore hydrocarbon production taps for safety reasons. An escalation of this conflict across the Middle East could make it difficult and perilous for any supplies from the region to be sent to the rest of the world, especially if Iran shuts down the Strait of Hormuz, potentially summoning another redrawing of the global oil and gas map, reminiscent of the one Russia prompted with the Ukraine crisis.  

The U.S.-Iran nuclear talks reportedly hit a stalemate as a cauldron of tensions in the Middle East continued to brew, reaching a boiling point when Israel, which has been actively developing its side of the East Mediterranean gas story, opted to rekindle the flames of its years-long conflict with Iran by carrying out air strikes against the other country on June 13, 2025. The attack is spurring fears of a nuclear radiation disaster, as the key targets of the strike include the latter’s nuclear program and scientists, ballistic missile sites, energy infrastructure, and military leaders.

Some see the latest conflict in the Middle East as a threat to oil supply security. Both Israel and Iran have flipped off the hydrocarbons production switch at their biggest offshore assets. In a move that many describe as being unprecedented, Israel hit a few of Iran’s key oil and gas assets, including the giant South Pars gas field, which the country shares with Qatar, where it is known as the North field.

According to Iran’s Ministry of Petroleum, this asset, portrayed as the world’s largest natural gas field, is not the only energy infrastructure that suffered damage because of Israel’s strikes, as these also struck the Shahran fuel and gas depot in Tehran and one of the country’s biggest oil refineries in Shahr Rey. These attacks forced Iran’s hand; thus, it partially suspended production from South Pars. As the country retaliated by firing ballistic missiles and drones at Israel, the death toll is on the rise amid global calls for de-escalation in hostilities.

Israel’s strikes on Iran’s energy infrastructure risk disrupting oil supplies from the Middle East to the rest of the world, including Europe and India, which receive crude oil imports from Saudi Arabia, Iraq, and the United Arab Emirates (UAE) via the Strait of Hormuz. This threatens to result in supply shortfalls, with a domino effect across global fuel prices, as the U.S. Energy Information Administration (EIA) indicates that the world’s second-largest proven natural gas reserves and the third-largest crude oil reserves are in Iran’s possession.

Some of Israel’s assets are now in offline mode too, after natural gas production was halted from the Leviathan reservoir, following a security recommendation from Israel’s Minister of Energy and Infrastructures, as confirmed by NewMed Energy, which revealed that Chevron, as the operator of the field, stopped the Leviathan platform’s operations until further notice from the Israeli authorities.

Energean also disclosed a temporary suspension of production from the FPSO Energean Power after receiving notice from the Ministry of Energy and Infrastructure on June 13, ordering the suspension of production and activities in the wake of the recent geopolitical escalation in the region.

“The safety of Energean’s staff is our top priority. All production activities have now been temporarily suspended and notices have been issued to Energean’s customers and other stakeholders. Energean maintains a close dialogue with the Ministry of Energy and Infrastructure and other relevant stakeholders to facilitate the safe resumption of production as soon as possible,” outlined the company in its statement.

In the aftermath of the initial attack, oil prices surged by over 10%; however, they stabilized at around $74/bbl later in the day. While the attack did not disrupt oil fundamentals since no significant damage to energy infrastructure was initially reported, several countries still instructed vessels to divert away from the Arabian Gulf. Wood Mackenzie claims that the oil market’s focus is shifting to a risk premium after weeks of depressed prices because of tensions that have flared up in the Middle East.

The energy intelligence player’s Ann-Louise Hittle, Vice President of Oil Markets; Alan Gelder, SVP Refining of Chemicals & Oil Markets; and Isabelle Gilks, Principal Analyst of Retail Fuels, have pointed out that the current situation is highly uncertain, with history suggesting an eye needs to be kept on several factors, such as the proxies and timing of Iran’s further retaliation should such be forthcoming.

The country is also contemplating the closure of the Strait of Hormuz, which is seen as one of the world’s vital oil chokepoints, where two oil tankers collided and caught fire on June 17, as reported by Reuters. After Israel attacked its consulate in Syria last year, Iran also threatened to block Hormuz, which led many to view the potential move as a conflict-turned opportunity that would restrict the global oil and gas market and tighten supply, augmenting the risk to LNG flow but propping up energy prices.

Following Israel’s air strikes against Iran, Saudi Arabia and the United Arab Emirates were quick to condemn the attacks, signaling their improving relationship with Iran and desire to avoid being drawn into an escalation of the conflict, as Gulf producers are the ones on which hopes rest to undertake the required action to ensure security of supply to the global energy markets.

“Given the scale of the Israeli attacks and the Israeli air dominance, an immediate large-scale response from Iran is unlikely. Oil prices could lose some of the current risk premium over the summer. Before the attack on 13 June, Brent had traded upward moving to $68-$69/bbl from the low $60s, and is now trading at $74-$75/bbl, pointing toward a premium of $5 to $7/bbl,” elaborated WoodMac, which expects some of the risk premium to ease in the next several weeks as OPEC+ barrels come back into the market.

“On the assumption that Iranian retaliation is symbolic, we project the price of Brent to weaken from current levels. Given the uncertainty, Brent is unlikely to fall back to the previous recent lows of $60 to $65/bbl. Even before the attack on 13 June, the price of Brent was strengthening with some of that – about $2/bbl – due to rising expectations of an Israeli attack. The risk premium on 13 June of $5 to $7/bbl is likely to ease to $3 to $5/bbl. The month of July could see an average of around $70 to $71/bbl.”

Wood Mackenzie has identified Iran’s potential decision to conduct an attack on shipping in the Gulf or Strait of Hormuz as a key risk, which would disrupt exports from the region responsible for almost 20% of global supply, leading to a severe impact on prices with Brent moving toward $90 to $100/bbl.

The firm underscored that prices would need to reach a high level to throttle demand in such a case, given the share of global supply that passes through Hormuz. The company believes this scenario to be unlikely, as the U.S. has already signaled its readiness to act if such a step is taken.

Furthermore, Ed Crooks, Wood Mackenzie’s Vice Chair Americas and host of Energy Gang podcast, describes the oil market’s response to this conflict as muted so far, but warns about the volatility of the situation, as Iran not only contains the world’s eighth-largest oil reserves and fourth-largest gas reserves based on WoodMac’s data, but also holds the keys to Hormuz through which 20% of world LNG exports and almost 20% of world oil production pass.

This includes approximately 1.5 million of Iran’s crude exports, which move through the Strait of Hormuz. With this in mind, WoodMac is convinced that a disruption to production and exports from the region could have a global impact. Fraser McKay, Wood Mackenzie’s Head of Upstream Analysis, is adamant that these exports are highly dependent on the Kharg Island terminal; thus, a disruption to this facility carries the risk of severely hampering the country’s ability to move crude.

Crooks underlined: “For gas, the global impact of any disruption is likely to be smaller. Despite its huge reserves, Iran is only a minor gas exporter. Most of its 29 bcfd production is consumed locally. But disruption to its 1 bcfd of gas exports to Iraq, Türkiye and Armenia could increase regional volatility. Another impact on gas markets comes from Israel, which has suspended operations at its Leviathan and Karish fields and stopped its exports to Egypt and Jordan.

“Egypt relies on imports from Israel for about a sixth of its total gas supply. It has started restricting gas consumption in an attempt to prevent shortages for power generation causing blackouts. Egypt has chartered two more floating storage and regasification units (FSRUs) and signed agreements to import more LNG. But supplies will be tight until those vessels are in operation, which is expected to be in the next few weeks.”

Hittle said that the global oil market was on course to be oversupplied by the fourth quarter of 2025 before the Israel-Iran conflict flared up, as OPEC+ producers unwind their 2.2 million b/d voluntary production cuts. If attacks keep avoiding oil production and export infrastructure, WoodMac anticipates some of the risk premium in oil prices to ease over the upcoming weeks.

Crooks continued: “The key risk of greater impacts, for both oil and gas, would emerge if Iran decided to attack shipping in the Gulf or the Strait of Hormuz. The impact of that on oil prices would be significant. Brent crude could move towards US$90 to US$100/bbl. But that would be a sharp escalation that would further isolate Iran and hurt its improved relations with Saudi Arabia. The US has indicated that attacks on shipping in the Gulf would trigger a military response, exacerbating the consequences for Iran. That makes such a step unlikely.

“The situation remains volatile, however, and markets are likely to stay on the alert for further shocks. For the US, the crisis has been a reminder that, despite the rhetoric about ‘energy dominance,’ the country still benefits from stable oil exports from the Middle East. As a net oil exporter, the US can weather a surge in crude prices better than many other economies. But a rise in the price of fuel still has consequences for American consumers, sapping their spending power and potentially stoking inflation. Those economic effects are a reason why the US will remain closely interested in how the conflict progresses.”

Wood Mackenzie indicates that the Israel-Iran conflict could have wide-ranging implications for global oil and gas markets, as Brent crude was trading at about $73 a barrel on June 16, up from about $65 a barrel at the start of the month, but down from its peak of over $78 a barrel soon after the news of Israel’s strikes first broke.

While Israeli attacks used to be aimed at Iran’s military and nuclear facilities, the noticeable shift toward energy infrastructure, such as the South Pars gas field, is interpreted by some analysts to signal a significant change in strategy, with economic warfare increasingly becoming the new trend, as illustrated by Jorge Leon, Rystad Energy’s Analyst, who deemed the strike as “probably the most important attack on oil and gas infrastructure since Abqaiq,” reported Bloomberg.

Considering the risk to the oil market’s stability, energy analysts believe that a further escalation in hostilities could place a target on Israel’s energy assets and Qatar’s operations, endangering energy exports and causing ripple effects to spread across Asia, Europe, and global supply chains, especially since strengthening energy security and incentivizing further investment has been at the top of global policy over the past few years.

James Hill, CEO of MCF Energy, told Offshore Energy: “When the conflict began, the price of oil spiked up 13% and natural gas up 6%. With about 20% of LNG and about 1/5th to as much as 1/3rd of oil shipments transiting [the Strait of Hormuz,] it is a critical transit point, and if shut, oil prices could spike up to $130 per barrel. This would have a major impact on the European and Western economies. However, this is not the first time this has happened, with warnings from Iran to close the straight coming in 2011, 2012, and the last in 2018 when the US withdrew from the nuclear deal and reimposed sanctions.

“However, by closing the strait, Iran would also suffer greatly and their economy would collapse as it uses the strait to import critical goods and as an outlet for oil exports to Asia. Several other factors make the possibility of closing the strait unlikely, as in this conflict, Iran needs the support from its neighbors, which also depend on the strait. Countries like Qatar, the UAE, and Saudi Arabia, which also use the strait for transit of oil and to import critical materials, would not lend any support to Iran in the conflict.“

The state of play in the Middle East makes for strange bedfellows, as many still adhere to the ‘enemy of my enemy is my friend’ philosophy, letting old grievances control the narrative instead of learning from Ashtiname and using the hope Jerusalem offers to overcome their differences.

Ensuring lasting peace across the Middle East is possible if all parties find the courage to change their ways, bury the hatchet, and move away from mistakes of the past to build true bonds based on mutual trust, respect, and understanding, bringing peace and prosperity to the region by braking the vicious cycle of violence and division in which history is doomed to repeat itself in an endless loop.

This conflict adds fuel to the fire, which is challenging the security of oil and natural gas markets, as countries scramble to come to grips with ways to strengthen energy security, encourage investment in a complex geopolitical reality, and balance the scales between the reliance on fossil fuels with a pledge to curb greenhouse gas (GHG) emissions.

“Plus, it may not be possible to completely close the strait as it is wide and has the UAE on the opposite side to oppose any closure. Even an attempt to close the strait would cause the price of oil to rise, bringing the US even more into the conflict against Iran, as a major goal of President Trump is to keep oil prices low. As in the past, it seems very unlikely that Iran would or could effectively close the waterway,” concluded Hill.

Given the potential for cost hikes across the supply chain in all energy markets, the conflict could also adversely affect the transition to a low-carbon and green energy future, derailing the progress toward a more sustainable energy landscape and putting security of supply in peril, as investor confidence nosedives.

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Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of Offshore Energy.

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