Oil nears $100 as US-Iran escalation fuels market jitters, inflation fears
As tensions escalate following Iran's intensified missile attacks on Israel and the sudden US involvement, analysts warn that a full-blown regional conflict could push Brent crude toward the $100 mark, ignite market volatility, and derail the fragile global recovery.
India-based maritime analyst and WMC Blue Economy Forum Chairman Nanoo Viswanadhan said the most immediate impact is being felt in the shipping sector. Insurance premiums for ships passing through the Strait of Hormuz — a critical maritime chokepoint between Iran and Oman that sees over 20 per cent of global crude oil flow — have jumped more than 60 per cent since the Iran-Israel conflict erupted. 'The cost of hull and machinery insurance has surged from 0.125 per cent to 0.2 per cent of a vessel's value within days, reflecting heightened risk perceptions,' he said.
Market watchers said with oil poised to breach new thresholds and inflation risks resurging, the global economy is entering a new phase of uncertainty. 'Whether this crisis triggers another global economic downturn or a geopolitical reset will depend largely on the next steps taken by Iran, Israel, and the US.'
Oil prices have already surged by over 18 per cent since June 10, with Brent touching $79.04 per barrel on Thursday — its highest in nearly five months — before dropping to $75.48 at close on Friday. Energy analysts say a sustained rally past $100 could materialise if Iran retaliates by targeting American interests or Gulf oil infrastructure, or disrupts shipping through the Strait of Hormuz. 'Much depends on Iran's next move, but we are now firmly on the edge of a major oil supply shock,' said Saul Kavonic, senior energy analyst at MST Marquee. 'A targeted disruption in Hormuz could set oil soaring past $100.'
The International Monetary Fund, World Bank, and OECD have all lowered their global growth forecasts in recent months, citing inflationary risks and geopolitical tensions. Any significant hike in oil and gas prices, they warn, would exacerbate inflation and force central banks to delay or reverse anticipated interest rate cuts. Bloomberg Economics echoed the concern, stating that the Middle East conflict adds an upward impulse to global inflation, just as supply chains and financial markets are starting to stabilise.
Financial markets remain on edge, with investors turning to traditional safe havens such as gold and the US dollar. The S&P 500, after a modest drop in the days following Israel's initial strikes on June 13, has remained flat, while cryptocurrency markets have shown sharper reactions. Ether, seen as a proxy for retail investor sentiment, fell 5 per cent on Sunday, bringing its total losses since June 13 to 13 per cent.
Investor sentiment is clouded by uncertainty, with many bracing for volatility. 'Markets will be alarmed in the short term. Oil will open higher, and there will be a knee-jerk flight to safety,' said Mark Spindel, CIO of Potomac River Capital. 'We don't yet know the full extent of the damage or Iran's next move. The risk premium is back in global markets.'
Steve Sosnick, chief market strategist at IBKR, said the dollar could gain strength amid global anxiety. 'If markets flee to safety, we will see bond yields dip and the dollar strengthen. But equities could react sharply depending on how much further Iran is willing to escalate.'
Jamie Cox of Harris Financial Group struck a cautious note of optimism, suggesting that the display of US military might may lead Iran to seek a diplomatic off-ramp. 'With its nuclear capability neutralised, Iran has lost leverage. There's a possibility that they now opt for a face-saving peace deal,' he said.
Historically, Middle East crises have prompted temporary market corrections, followed by rebounds. During the 2003 Iraq invasion and 2019 Saudi oil facility attacks, the S&P 500 initially dipped but recovered within months. According to Wedbush Securities and CapIQ Pro, the index was on average 2.3 per cent higher two months after major conflicts began.
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