The current US-Iran crisis marks the most serious escalation between the two countries since America’s Operation Midnight Hammer on June 22, 2025, which attempted to “neutralize” Iran’s nuclear capabilities by bombing three facilities: Fordow, Natanz, and Isfahan.
These tensions have pushed crude prices up nearly 20% since the start of the year, reaching $67 per barrel — the highest in six months — despite a fundamentally bearish macro outlook. The oil market remains structurally oversupplied. The IEA’s February 2026 report projects demand growth of just 850,000 barrels per day, while supply continues to outpace it. Global observed inventories rose by 477 million barrels in 2025, the highest level since 2020.
Crude oil prices are being supported by the ongoing geopolitical risk premium, which Goldman Sachs estimates at around $6 per barrel. If tensions ease, that premium could unwind quickly, triggering a sudden price drop similar to the one following the last joint US-Israeli attack, the so-called “12-day war.”
The United States has deployed two carrier strike groups to the region, with the Abraham Lincoln stationed 150 miles off the coast of Oman. The nuclear-powered aircraft carrier Gerald R. Ford is heading toward the Gulf, accompanied by a massive deployment of aircraft and missile defense systems at nearby bases — the largest U.S. military presence in the Middle East since 2003. Meanwhile, Iran appears to have finalized a deal with China for long-range missiles capable of targeting enemy aircraft carriers.
The main point discussed at the Geneva negotiations remains uranium enrichment: the U.S. demands its complete cessation, while Iran considers it non-negotiable. According to U.S. sources cited by Axios, this diplomatic effort may represent the final opportunity to avoid a joint US-Israeli military operation.
On the oil market front, all eyes are on the Strait of Hormuz, controlled by Iran and Oman, through which an average of 20 million barrels per day — roughly 20% of global consumption — transits. About 69% of these flows are destined for China, India, Japan, and South Korea. Even a partial closure due to military action or sabotage would have disastrous consequences. Alternative routes, such as Saudi Aramco’s East-West pipeline, lack the capacity to replace more than a fraction of these flows.
The CSIS (Center for Strategic and International Studies), in its February 18 report “If Trump Strikes Iran,” outlines several scenarios. In the worst case — Iranian retaliation and a Strait closure lasting weeks — oil prices could exceed $90 per barrel. Estimates from ClearView Energy Partners cited by CSIS suggest that broadening of sanctions could add up to $7 per barrel, an attack on Kharg Island up to $13, and a limited 3–7 day blockade of the Strait could push prices up by $13–$28 per barrel.
CSIS underscores a crucial point: closing the Strait would also halt Iran’s own exports of 1.5 million barrels per day. Tehran would likely only take such action if its exports were already cut off and it had nothing left to lose — in other words, if a US-Israeli attack left the regime with no viable options for survival.
Given the uncertainty around the consequences of a military intervention and the U.S. political need for a win without casualties, the most likely scenario remains either a partial agreement or the maintenance of the status quo. In that case, the geopolitical premium would dissipate, and crude prices would realign with baseline forecasts around $60 per barrel by year-end.
Limited strikes on military or nuclear sites, coupled with a breakdown in negotiations, could provoke calibrated Iranian retaliation without blocking Hormuz. This would likely cause an initial spike to $80–85, followed by stabilization between $70–80. A full-scale conflict with a closure of Hormuz, however, could trigger an uncontrolled escalation, pushing Brent crude to $90–120 in the short term.
The risk is asymmetrically skewed to the upside. Even a partial closure of the Strait of Hormuz would have a far greater impact on prices than a positive agreement. The market has not priced in an open conflict scenario. As CSIS notes, the decisive factor is whether Iran loses its ability to export. Only then does the Hormuz risk become real — and currently, no player appears willing to assume the domestic political fallout of such a scenario.
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