Why Oil Prices Could Skyrocket Beyond $100

Middle East on the Boil, Oil Prices Could Skyrocket Beyond $100

As the conflict between Israel and Iran escalates, markets are bracing for more than just a significant surge in oil prices.

If the United States enters the conflict and Iran retaliates by closing the Strait of Hormuz, the global energy supply could be severely disrupted, sending prices soaring well beyond $100 per barrel.

The Strategic Importance of the Strait of Hormuz

The Strait of Hormuz is a narrow waterway connecting the Persian Gulf with the Arabian Sea. It is one of the most critical transit routes for global oil exports. Tehran has repeatedly threatened to close the strait if provoked. Now, this isn’t just rhetoric—it could become a reality.

U.S. intervention in the war could draw in regional actors, likely leading to targeted strikes on oil rigs, refineries, or tankers. As a precedent, the attacks on Saudi Aramco in 2019 slashed global supply by 5% overnight.

• Roughly 20% of the global oil supply (over 17 million barrels per day) flows through the Strait.

• Key exporters using this route include Saudi Arabia, Iraq, UAE, Kuwait, and Iran.

Market Impacts: $100 Oil Could Be Just the Beginning

In the short term, oil prices could breach $100 per barrel within days of any confirmed disruption. Over the medium to long term, the damage to infrastructure in the region could take months or even years to repair.

Insurance premiums for ships operating in the area are also expected to rise sharply, they've already increased by 60%. While strategic reserves may be released to ease immediate shortages, they are unlikely to sustain the market in the event of a prolonged crisis.

Global Ripple Effects: Japan, China, India, and South Korea

Japan, which we’re watching closely due to its substantial holdings of U.S. Treasuries and its close economic ties to both the West and Asia, is particularly vulnerable in the event of a Middle East energy disruption.

Japan imports nearly all of its oil, with a significant portion sourced directly from the Persian Gulf. Any disruption to this supply, would sharply increase Japan’s energy import costs, deepening its trade deficit and placing additional strain on an already fragile economy. This would also push import-driven inflation higher, complicating the Bank of Japan’s monetary policy and potentially weakening the yen further.

The repercussions would not be limited to Japan alone. Other major oil-importing economies like China, India, and South Korea would experience similar inflationary pressures. The sudden spike in energy costs would raise manufacturing and transportation expenses, which could translate into higher prices for goods globally.

These economies also serve as key manufacturing hubs in global supply chains, so any energy-driven cost increases or supply disruptions could ripple across international markets, exacerbating inflation, slowing growth, and amplifying existing supply chain instability.

A Volatile Road Ahead

The Israel-Iran conflict is far more than a localized geopolitical standoff, it stands as a potential watershed moment for the global energy system. If Iran follows through on its threats to close the Strait of Hormuz or if the United States intervenes militarily, we could witness a rapid and sustained spike in oil prices well beyond the $100 mark. Such a scenario would not only strain energy markets but also unleash powerful secondary effects across the global economy.

Higher oil prices would immediately feed into inflation across both developed and emerging markets, just as many central banks are struggling to stabilize prices after years of post-pandemic volatility. Energy-dependent industries would see sharp cost increases, putting downward pressure on corporate margins and raising consumer prices worldwide. 

Moreover, a prolonged conflict could lead to a reconfiguration of global trade routes, shipping insurance, and energy alliances. Countries may accelerate diversification away from Middle Eastern oil, investing more heavily in strategic reserves, alternative energy sources, and bilateral deals.

In short, this is not just about oil, it is about the structural resilience of the global economy. The Israel-Iran conflict could trigger a global chain reaction, challenging monetary policy frameworks, intensifying geopolitical fault lines, and redefining the balance of power in energy markets for years to come. Policymakers, investors, and businesses should prepare not only for short-term volatility but also for a potential realignment in the global economic order.