Israel-Iran Strikes Send Oil Prices Soaring amid Strait of Hormuz Fears

Ever since 13th June, Israeli and Iranian air and missile exchanges have sharply escalated, targeting nuclear and energy sites on each side of the border and threatening the onset of a wider regional war. Israel's surprise Operation "Rising Lion" struck more than 100 targets across Iran, including the Natanz uranium enrichment facility and a major oil depot in Tehran, killing senior IRGC commanders and civilians. Iran responded with daylight missile strikes against Tel Aviv, Haifa and surrounding towns, killing additional civilians and setting off emergency air-raid warnings.

Images of a blaze at Tehran's Shahran oil depot illuminate the war's spillover into energy markets. Brent crude futures climbed to $76.37 a barrel as of late June 14, up $2.14 (2.9%), and U.S. West Texas Intermediate rose $2.03 (2.8%) to $75.01, after intraday climbs topping 4%. Merchants cited apprehension that Iranian shipments would be affected and spillover to regional energy centers was inescapable as oil flows through the Strait of Hormuz, a chokepoint for close to 20% of world crude trade.

Tehran threatened to blockade the Strait of Hormuz in retaliation, which, analysts say, would drive prices above $100 a barrel and feed world inflation. Blocking the Strait would strangulate exports from Saudi Arabia, Kuwait, Iraq and Iran itself, further freezing already nervous markets.

Other than energy, equities have been nervous: U.S. stock futures dropped 1.8% on Friday, as safe-haven assets like the U.S. dollar and gold jumped. Emerging-market currencies like the Indian rupee declined to below 86 against the dollar, as imports grew more costly and risk aversion set in. Economists assert that prolonged volatility would drain consumer confidence, restrain investment and complicate monetary policy worldwide.

As diplomatic talks stall with Iran suspending nuclear negotiations and Israel vowing to intensify airstrikes the energy shock may prove to be the most vital expression of a war that has no point in sight where it will end.