A speed boat from the Islamic Revolutionary Guard Corps sails near a cargo ship in the Persian Gulf. Photo: Morteza Nikoubazl/NurPhoto/Associated Press

Oil traders see it as a worst-case scenario. Pentagon officials have long warned against it. Vice President JD Vance believes it would be suicidal.

Yet Iranian lawmakers on Sunday reportedly threatened a closure of the Strait of Hormuz, a strip of water connecting the energy rich Persian Gulf to global markets, after the U.S. joined Israeli strikes on Tehran’s nuclear facilities. That rattled oil markets and sent U.S. stock futures lower on Sunday evening.

So far, no attacks have taken place in the strait, and oil is still moving. But traders are worried that if the fighting spreads, tankers or export facilities could be targeted. That would put global supplies at risk, especially since Iran exports about 3.3 million barrels…

A major reason oil prices moved higher was concern about the Strait of Hormuz. This narrow waterway off Iran’s southern coast is one of the most important oil routes in the world. Each day, about 18 to 21 million barrels of oil and petroleum products move through the strait—roughly one-fifth of the world’s oil supply.

The jump in prices came after Israel launched airstrikes on Iranian military and nuclear targets. Iran answered with drone and missile attacks on Israeli infrastructure. These direct strikes marked a serious escalation, and markets took notice. As the conflict entered a second week, there was no indication that either side was looking to stand down, and that kept traders on edge.

Crude oil prices climbed sharply last week as the conflict between Israel and Iran worsened, raising fears that global oil supplies could be affected. The situation quickly became one of the most closely watched issues in the oil market, pushing prices to their highest levels since January. West Texas Intermediate (WTI) and Brent crude both rose nearly 7% over the week, as investors responded to the growing threat of disruptions in the Middle East.

Crude oil prices climbed sharply last week as the conflict between Israel and Iran worsened, raising fears that global oil supplies could be affected. The situation quickly became one of the most closely watched issues in the oil market, pushing prices to their highest levels since January. West Texas Intermediate (WTI) and Brent crude both rose nearly 7% over the week, as investors responded to the growing threat of disruptions in the Middle East.

The jump in prices came after Israel launched airstrikes on Iranian military and nuclear targets. Iran answered with drone and missile attacks on Israeli infrastructure. These direct strikes marked a serious escalation, and markets took notice. As the conflict entered a second week, there was no indication that either side was looking to stand down, and that kept traders on edge.

Why the Strait of Hormuz Matters to Oil Prices

A major reason oil prices moved higher was concern about the Strait of Hormuz. This narrow waterway off Iran’s southern coast is one of the most important oil routes in the world. Each day, about 18 to 21 million barrels of oil and petroleum products move through the strait—roughly one-fifth of the world’s oil supply.

So far, no attacks have taken place in the strait, and oil is still moving. But traders are worried that if the fighting spreads, tankers or export facilities could be targeted. That would put global supplies at risk, especially since Iran exports about 3.3 million barrels of oil per day.

Several banks, including Goldman Sachs and JP Morgan, believe that current oil prices already include an extra $10 per barrel because of these concerns. If the strait were blocked or seriously threatened, some analysts think prices could jump to $120 or more.

Waiting on the U.S. Response

Markets are also watching how the United States will respond. President Trump has said a decision on possible U.S. involvement could come within two weeks. If the U.S. takes military action or supports Israel directly, the risk to oil shipments in the region would increase. That’s part of why oil prices stayed firm throughout the week—investors are waiting to see if the conflict grows or settles down.

Even though no supply has been lost yet, just the threat of problems is enough to push prices higher. Oil traders aren’t taking any chances while the situation remains uncertain.

Oil Supply Tightens as U.S. Inventories Drop

On top of the conflict in the Middle East, the latest U.S. inventory report added more support to oil prices. The Energy Information Administration (EIA) reported that U.S. crude stockpiles fell by 11.5 million barrels last week—the biggest drop in over a year. At the same time, U.S. oil exports increased while imports fell, pointing to either stronger demand or tighter supplies.

Gasoline demand also rose as Americans began hitting the roads for summer travel. Analysts believe this seasonal trend will continue, helping keep oil use steady and supporting prices.

Federal Reserve Suggests Possible Rate Cuts

Oil prices also got a boost from news out of the Federal Reserve. The Fed kept interest rates unchanged last week but said it might lower them twice by the end of the year. That raised hopes that the U.S. economy could pick up speed in the second half of 2025, which would increase fuel use.

At the same time, high oil prices could slow the economy by adding to inflation, which makes the Fed’s job harder. Still, for now, the market took the Fed’s comments as good news for oil demand.

Reports Show Global Supply May Still Be Ample

Despite all the concern over supply risks, the International Energy Agency (IEA) released a report last week that could limit further price gains. The agency lowered its forecast for global oil demand and raised its outlook for supply in 2025. That suggests there could be enough oil to meet demand, as long as major disruptions don’t happen.

Separately, officials from OPEC+ said they still plan to gradually raise production to meet higher summer demand. Russia’s top oil official emphasized the need to stay calm and avoid scaring the market with supply warnings. These statements helped ease some investor concerns about an immediate supply crunch.

Weekly Light Crude Oil Futures

Trend Indicator Analysis

The main trend is up according to the weekly swing chart. A trade through $77.13 will reaffirm the uptrend. The trend changes to down on a move through $52.49.

The long-term range is $51.98 to $82.91. Its 50% level at $67.44 is key support. Crossing to the strong side of this pivot is helping to support the upside momentum.

The market is also trading on the strong side of the 52-week moving average at $66.14. This is another major support level and trend indicator.

After a spectacular rally to $76.10 last week, the market remains in a position to challenge tops at $76.57 and $77.13. Traders are showing respect for these tops, but if taken out with conviction and high volume, prices could accelerate into another major top at $82.91.

Weekly Technical Forecast

The direction of the Weekly Light Crude Oil Futures market the week ending June 27 is likely to be determined by trader reaction to $71.46.

Bullish Scenario

A sustained move over $71.46 will signal the presence of buyers. If this creates enough upside momentum, we could see a near-term rally into the swing tops at $76.57 and $77.13. Taking out the later could trigger a near-term acceleration into at least $82.91.

Bearish Scenario

A sustained move under $71.46 will indicate the return of sellers. If it generates enough downside momentum, we could see a near-term correction into the support cluster at $67.44 to $66.14.

Oil Price Outlook: Tensions Support Higher Prices for Now

Looking ahead to next week, oil prices are expected to remain firm. The ongoing conflict between Israel and Iran, the risk of U.S. military involvement, and falling U.S. inventories are all factors keeping prices high. Unless there’s a quick ceasefire or clear de-escalation, traders are likely to keep pricing in risk.

At the same time, if the fighting doesn’t spread and oil continues to flow through the Strait of Hormuz, prices could level off. Much will depend on political developments and any further signals from oil producers.

For now, the oil market remains supported by concern over supply security—and until that concern fades, prices are likely to stay elevated.

Technically, from the bottom-up, light crude oil futures are expected to remain well-supported by the support cluster at $67.44 to $66.13, which could prove to be an attractive buy area if tested.

On the upside, trader reaction to $77.13 will set the tone. It’s either going to be resistance or a trigger point for a near-term surge into $82.91.

While direct attacks on oil infrastructure are a significant risk, current market conditions do not reflect a worst-case scenario of a major supply blockade, and prices may adjust if disruptions do not materialize.

The Strait of Hormuz, a vital passage for global oil shipments, remains open despite tensions, and analysts generally believe a closure is unlikely.

Oil prices have fluctuated due to concerns about potential supply disruptions in the Middle East following recent Israeli strikes on Iran, but no actual supply cuts have occurred.

Oil prices continued to rise on Tuesday afternoon, following a dip in Monday’s trading session. Today’s oil price action follows Friday’s biggest intraday surge in three years following the Israeli strikes on Iran.

The market’s worst fear—a major supply disruption in the Middle East—hasn’t materialized yet. And it may not, as was the case in the previous Israel-Iran flare-ups in recent years.

What Happened?

Oil prices spiked by 13% immediately after Israel hit Iran’s nuclear facilities and uranium enrichment sites early on Friday. The gain eased to 7% at close on Friday.

Then oil prices retreated on Monday as no major oil supply route or infrastructure in the world’s most important crude-producing region was affected after four days, and as reports emerged that Iran had signaled it seeks an end to hostilities and a return to nuclear talks if the U.S. stays out of the conflict.

As in previous such flare-ups in the Middle East, market speculators fear a disruption to supply and bet on rising oil prices.

In a sign that the world hasn’t lost a single barrel of oil from the region so far, the physical Dubai prices rose on Friday less than the Brent Crude futures. Actual consumers of the Middle East’s oil appear less concerned than the futures traders in Brent, Reuters columnist Clyde Russell notes.

Related: Diesel Emerges as Key Winner Amid Middle East Tensions

As of Tuesday, no major oil export infrastructure has been hit, and the Strait of Hormuz—the most vital crude flows lane—remains open to navigation.

Despite Iran’s on-and-off threats to close the Strait of Hormuz, where a fifth of global daily crude consumption passes every day, the narrow lane has never been blocked in any previous conflict in the Middle East.

Analysts don’t think this will be the one that will lead to a closure of the Strait.

What Might Happen, Or Not

“We think ‘closure of the Strait’ has emerged as something of a market straw man scenario” in recent trading, analysts at RBC Capital Markets said in a note earlier this week.

However, oil supply from the Middle East could become vulnerable if the two sides decide to attack vital energy infrastructure in the region, the analysts noted, warning that energy, and oil in particular, are now “clearly in the crosshairs.”

“The fact that both sides targeted energy infrastructure on the second day of fighting represents a clear cause for concern,” the analysts wrote in the note carried by Bloomberg.

Iran’s Kharg Island—a major crude terminal and trade hub handling 90% of Iranian crude oil exports, could be targeted by Israel at some point, RBC says. Iranian proxies, for their part, could target oil facilities in neighboring Iraq, OPEC’s second-largest oil producer after Saudi Arabia, according to the bank.

“The White House has probably sought to dissuade Prime Minister Netanyahu from a Kharg Island strike, given that it could remove 90% of Iranian oil exports,” the bank’s analysts wrote.

The oil market’s biggest fear—the closure of the Strait of Hormuz—appears a distant prospect for now, analysts say, although they acknowledge that if oil flows are disrupted in the Strait, oil prices could easily hit $100 per barrel.

In the absence of a Middle East supply disruption, Brent prices may struggle to stay above $70 a barrel, Ole Hansen, Head of Commodity Strategy at Saxo Bank, said on Monday.

So far, there haven’t been direct strikes on oil infrastructure or export facilities. This, combined with oil failing to surpass Friday’s price peaks—$78.50 Brent and $77.60 WTI —invited profit-taking and hedging flows from producers early this week, Hansen commented.

“Still, the unfolding conflict presents a binary risk scenario: uninterrupted flows could trigger a sharp $10 correction, while any disruption to Iranian exports or a worst-case scenario blockade of the Strait of Hormuz could send prices soaring.”

The current oil price levels in the low $70s per barrel would only be justified if an actual supply disruption materializes, Hansen noted.

The Israel-Iran conflict appears likely to be contained and the United States could potentially play a central role, Mukesh Sahdev, Rystad Energy’s Global Head of Commodities Markets – Oil, said on Monday.

“A blockade remains the key risk that could push markets into uncharted territory,” Janiv Shah, Rystad Energy’s Vice President, Commodities Markets – Oil, commented, referring to a potential blockade of the Strait of Hormuz.

However, “Given its interest in keeping prices closer to $50, the US could play a stabilizing role,” Shah added.

“We maintain our view that this is likely to remain a short-lived conflict, as further escalation risks spiraling beyond the control of key stakeholders,” Shah said.

Oil prices continued to trade the war premium on Tuesday, amid uncertainties about how the conflict will evolve, with U.S. President Donald Trump leaving the G7 summit in Canada early and urging “everyone” in Tehran to evacuate immediately.

Yet, the oil market isn’t pricing a worst-case scenario of a blockade of the Strait of Hormuz that would choke off a large part of global supply—and it probably shouldn’t.

By Tsvetana Paraskova for Oilprice.com

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The intense rounds of air attacks between Israel and Iran have analysts and traders poring over scenarios for the direction of energy markets.

A wide range of outcomes are possible, with prices in the most extreme cases soaring above $120 a barrel, analysts at Deutsche Bank wrote in a note, but also drifting down to $50 a barrel next year.

The initial round of Israeli attacks sent oil prices 7 percent higher on Friday. Still, at about $74 a barrel, Brent crude remains below the $80 average for 2024, the Deutsche Bank analysts wrote. The market continued to waver, though, and by Monday, oil prices had fallen about 3 percent.

Such relatively modest levels may seem surprising with fighting raging in a region that produces around 25 million barrels a day, according to Rystad Energy, a consulting firm.