Executive Summary
The global crude oil market faces unprecedented volatility in June 2025 following Israel’s major military strikes on Iranian nuclear and military facilities on June 13, 2025. Oil prices surged 7.26% on Friday, marking the biggest single-day gain since March 2022, with WTI crude settling at $72.98/barrel and Brent at $74.23/barrel. While immediate supply disruptions have been limited, the escalating conflict between Israel and Iran has injected significant uncertainty into energy markets, with potential risks to the Strait of Hormuz—through which 21% of global petroleum liquids consumption passes daily.
Despite geopolitical tensions, fundamental market dynamics point to an oversupplied market in 2025, with global oil supply expected to exceed demand by an average of 1.2 million barrels per day. This structural oversupply, combined with weakening demand from China and substantial OPEC+ spare capacity, may limit sustained price increases unless the conflict significantly disrupts regional oil infrastructure.
Current Market Conditions
Pricing Overview
As of June 13, 2025:
- WTI Crude: $73.18/barrel (up 7.55% daily, up 15.88% monthly, down 6.24% yearly)
- Brent Crude: $74.49/barrel (up 7.40% daily, up 12.71% monthly, down 9.84% yearly)
Prior to the Israeli strikes, oil prices had been under significant pressure due to:
- Trade tensions and tariff concerns
- Weakening global economic growth
- OPEC+ production increases of 411 kb/d for June 2025
- Slowing demand growth, particularly from China
Supply-Demand Dynamics
The oil market entered June 2025 in a state of fundamental oversupply:
Demand Factors:
- Global oil demand growth projected to slow from 990 kb/d in Q1 2025 to 650 kb/d for the remainder of the year
- China’s oil demand has essentially flatlined since 2023 amid a slowdown in industrial production and increased sales of electric vehicles
- J.P. Morgan projects oil demand to expand by 800 kbd in 2025 — down 300 kbd from previous forecasts
Supply Factors:
- U.S. crude oil production forecast to decline from 13.5 million b/d in Q2 2025 to about 13.3 million b/d by Q4 2026
- OPEC+ spare capacity estimated at over 5 million barrels per day
- Multiple OPEC+ members investing in capacity expansions through 2025-2027
The Israel-Iran Conflict: Market Impact
Immediate Effects
The June 13, 2025 Israeli strikes, codenamed “Operation Rising Lion,” targeted nuclear facilities, military installations, and killed Iran’s top military leadership. Market reactions were swift:
- Oil prices posted their biggest single-day gains since March 2022
- US oil and Brent surged as much as 14% and 13% intraday before settling lower
- Safe haven assets like gold saw increased demand
- Stock markets declined on escalation fears
Supply Disruption Scenarios
Analysts have outlined several potential scenarios:
1. Contained Conflict (Base Case)
- Goldman Sachs estimates temporary disruption of 1.75 million barrels per day of Iranian supply over six months
- Brent prices could peak just over $90/barrel before declining to the $60s in 2026
- Limited regional spillover effects
2. Regional Escalation
- Potential attacks on Saudi, UAE, or Kuwaiti oil infrastructure
- Oil prices could reach $100+ per barrel if Iranian production is significantly disrupted
- Increased shipping risks in the Persian Gulf
3. Strait of Hormuz Disruption (Worst Case)
- Closure could prompt oil prices to climb far above $100 a barrel
- In extreme scenarios, Brent crude could spike to $350/barrel, though this is considered highly unlikely
- Would put at risk 21 million barrels per day of oil flow
Mitigating Factors
Several factors limit the likelihood of extreme price spikes:
- OPEC+ Spare Capacity: Saudi Arabia and UAE could pump around 3.5 million bpd more, roughly equivalent to Iran’s production
- Strategic Reserves: The IEA has 1.2 billion barrels of emergency stocks available
- Alternative Routes: Around 3.5 million b/d of effective unused pipeline capacity could bypass the Strait of Hormuz
- Chinese Influence: China, Iran’s largest oil customer, would likely pressure Tehran against disrupting oil flows
- U.S. Military Presence: The U.S. Fifth Fleet in Bahrain provides security for shipping lanes
Regional Economic Impact
Middle East Economies
The conflict exacerbates existing economic challenges in the region:
- IMF lowered Saudi Arabia’s 2025 GDP growth forecast to 3.3% due to extended oil production cuts
- Middle East and North Africa region expected to grow moderately at 2.6% in 2025
- Lebanon estimated to suffer a 9.2% loss of GDP this year
- Egypt has suffered revenue losses of $6 billion per year due to decreased Suez Canal traffic
Global Economic Implications
- IMF cut global GDP growth expectations to 2.8% for 2025, down from 3.3% forecast in January
- Renewed inflationary pressures from higher energy costs
- Goldman Sachs estimates sustained higher oil prices could subtract 1.5 percentage points from annualized global CPI gains
Market Outlook and Price Forecasts
Near-Term (2025)
Investment banks and analysts provide varied forecasts:
- J.P. Morgan: Maintains Brent forecast at $66/barrel for 2025
- Goldman Sachs: Projects potential spike to $90+/barrel if conflict escalates
- IEA: Expects continued oversupply conditions with demand growth of only 740 kb/d
Medium-Term (2026)
- J.P. Morgan: Forecasts Brent at $58/barrel for 2026
- Expectations of continued global oversupply
- Risk of market reset as OPEC+ members increase production to maximize revenue
Key Price Drivers
Bullish Factors:
- Geopolitical risk premium from Middle East tensions
- Potential for supply disruptions
- OPEC+ struggling to bring production back due to weak demand
Bearish Factors:
- Global oil supply expected to exceed demand by 1.2 million bpd in 2025
- China’s structural demand slowdown
- Trump administration’s preference for oil prices at $50/barrel or lower
- Substantial spare capacity and strategic reserves
Risk Assessment
High-Probability Risks
- Continued Regional Tensions: Tit-for-tat strikes between Israel and Iran
- Sanctions Enforcement: Tighter enforcement on Iranian oil exports
- Market Volatility: Continued price swings based on conflict developments
Medium-Probability Risks
- Proxy Attacks: Iranian-backed groups targeting regional oil infrastructure
- Shipping Disruptions: Harassment of tankers in the Persian Gulf
- OPEC+ Unity: Breakdown in production discipline among members
Low-Probability/High-Impact Risks
- Strait of Hormuz Closure: Would cause severe global energy crisis
- Major Infrastructure Attacks: Direct strikes on Saudi/UAE oil facilities
- Full Regional War: Involvement of multiple state actors
Strategic Implications
For Oil Producers
- Opportunity to increase market share if Iranian exports are curtailed
- Need to balance revenue maximization with price stability
- Several OPEC members expected to ramp up production, with over $10 billion in international investment flowing to Middle East upstream sector annually from 2025-2027
For Oil Consumers
- Consider strategic reserve releases if prices spike sustainably above $90
- Accelerate energy transition and efficiency measures
- Prepare for potential gasoline price increases of 10-25 cents per gallon
For Energy Investors
- Increased volatility creates trading opportunities
- Long-term bearish fundamentals suggest caution on sustained bullish positions
- Focus on companies with strong balance sheets and low breakeven costs
Conclusion
While the Israel-Iran conflict has injected significant geopolitical risk into oil markets, fundamental supply-demand dynamics suggest limited sustained price impact unless the conflict dramatically escalates. The market’s relatively muted response—compared to historical geopolitical crises—reflects several key factors:
- Abundant Supply: With OPEC+ spare capacity exceeding Iranian production and strategic reserves available, supply disruption risks are manageable
- Weak Demand: Structural headwinds from China and global economic slowdown limit price upside
- Market Intelligence: Modern surveillance and tracking tools provide near-real-time visibility into supply conditions
The most likely scenario remains a temporary price spike followed by gradual normalization as markets digest the new geopolitical reality. However, energy market participants should remain vigilant for escalation scenarios that could fundamentally alter the supply-demand balance, particularly any threats to the Strait of Hormuz or broader regional oil infrastructure.
Looking ahead, the combination of ample spare capacity, weakening demand growth, and political pressure for lower energy prices suggests that any conflict-driven price increases may prove temporary. The structural oversupply conditions expected through 2025-2026 will likely reassert themselves once immediate geopolitical tensions ease, keeping oil prices under pressure in the medium term.
Report Date: June 14, 2025
Prepared based on market data and analysis available as of June 14, 2025