A full-blown war between the United States and Iran could, in a worst-case scenario, send oil prices soaring and cause an economic downturn.
With a massive U.S. military buildup underway in the Middle East, President Donald Trump signaled Thursday that he will decide in the next 10 days whether to launch strikes against Iran.
“This Iranian situation just scares the daylights out of this market consistently,” John Kilduff, founder of Again Capital, told CNBC. “There will be some mischief made by Iran and that’s what the market is pricing in.”
Trump has warned Iran that an attack would be “far worse” than the limited U.S. airstrikes that targeted its nuclear facilities last June, but has also left open the possibility that negotiations could still hammer out a deal governing Iran’s nuclear program.
Pricing risk
Oil prices have risen nearly 6% this week as traders price in the growing risk of military action. The market’s biggest fear is that war would disrupt oil flows through the Strait of Hormuz.
The strait is a vital chokepoint for the global oil trade. More than 14 million barrels per day of oil and condensates passed through the narrow waterway on average in 2025, according to data from consulting firm Kpler, which says that accounts for a third of total worldwide seaborne oil exports.
About three-quarters of the oil that passes through the strait goes to China, India, Japan and South Korea, according to Kpler.
Iran’s Revolutionary Guard on Tuesday partially closed the strait for several hours to conduct military exercises. The Guard is prepared to shut down the strait if ordered by Iran’s leaders, according to the semiofficial Tasnim news agency, citing Iranian Navy Rear Admiral Alireza Tangsiri.
“Iran could disrupt Hormuz for a lot longer [than] many market participants think,” said Bob McNally, founder of Rapidan Energy.
Worst-case scenario
The U.S. could face a situation similar to the 52-day air campaign against Houthi militants in Yemen who disrupted the Red Sea with missile attacks — but worse, McNally said.
“Iran has much better weaponry and much better coastline to operate from than the Houthis,” the energy strategist said. It also boasts vast stockpiles of mines and short range missiles that could make the strait unsafe for commercial traffic.
“Lloyd’s is not going to allow or insure tankers to go through Hormuz in that kind of environment,” McNally said, referring to London insurers.
Global energy markets cannot balance supply and demand without the oil that flows through the strait, McNally said. A prolonged closure would send oil prices above $100 per barrel, curbing demand and potentially precipitating an economic downturn, he said.
Iran may calculate that it can precipitate Trump’s worst fears by tanking the economy ahead of the U.S. mid-term elections in November, McNally said.
Rystad Energy sees oil prices rapidly rising by $10 to $15 per barrel in a scenario where there’s a wider conflict between the U.S. and Iran, according to a research note published earlier this month.
Limited strikes
But Trump also has a wide range of options, including a blockade or other actions, that fall short of full-blown regional war, McNally said.
Any U.S. military action is likely “to be surgical and designed to avoid Iran’s oil production and export infrastructure,” said Natasha Kaneva, JPMorgan head of global commodities strategy, in a Thursday report. A post-strike rally in crude oil prices would “eventually fade as global fundamentals remain relatively soft,” Kaneva said.
Goldman Sachs similarly doesn’t see a risk of a major, sustained supply disruption, at least in its base case, said Daan Struyven, head of oil research, in an interview with CNBC. But a conflict that leads to the loss of 1 million barrels per day of Iranian exports for a year would raise crude oil prices by $8 and force the market to reassess the risk of further escalation, he said.
And the Trump administration also appears nonchalant about the risk of a disruption in the Middle East.
“The world is very well supplied with oil right now,” Energy Secretary Chris Wright told CNBC in a Feb. 6 interview, giving the president “more leverage in his geopolitical actions to not worry about a crazy spike in oil prices.”
