Category World News

Israel’s strike on military and nuclear sites, and Iran’s retaliation, have rocked already strained global supply chains.

As airlines suspend flights to Tel Aviv, Tehran and other airports across the region, oil companies, shipping firms, and regulatory agencies are scrambling amid growing concerns that key trade routes like the Strait of Hormuz could be caught in the crossfire.

Merchant shipping is still passing through the Strait of Hormuz, but with increased caution. Iran has previously threatened to close this critical trade route in response to Western pressure. Even the suggestion of such a move has already sent shockwaves through global markets, and the price of oil has risen.

United States President Donald Trump’s latest rhetoric has done little to ease those concerns. He warned that if Iran does not “make a deal”, there could be more “death and destruction”.

“If the United States is perceived to be involved in any attacks, the risk of escalation increases significantly,” Jakob Larsen, chief safety and security officer with shipping association BIMCO, told the Reuters news agency.

Oil Prices Rise

As of 4:00pm in New York (20:00 GMT), Brent crude prices, which are considered the international standard, are 5 percent higher than yesterday’s market close.

Oil futures spiked more than 13 percent at one point, reaching their highest levels since January.

Any closure of the Strait of Hormuz, a strategic trade route between the Arabian Gulf and the Gulf of Oman, through which roughly 20 percent of the world’s global oil output travels, would likely drive oil prices even higher. This could intensify inflationary pressures globally, and particularly in the US.

The price surge comes on the heels of a better-than-expected Consumer Price Index report in the US earlier this week, which showed prices increased by just 0.1 percent for the month. Energy costs remain a key inflation driver. Petrol prices, in fact, fell 2.6 percent during the period. Consumer sentiment, too, jumped for the first time in six months as tariff fears eased. However, the new conflict could cut short the relief that US consumers had expressed, according to analysts from JPMorgan Chase.

Wait and see 

“Sustained gains in energy prices could have a dire impact on inflation, reversing the months-long trend of cooling consumer prices in the US,” commodity researchers for JPMorgan Chase said in a note released on the heels of the strike. “We continue to believe that any political policies that might drive oil and inflation higher would likely yield to Trump’s primary objective of maintaining low energy prices—a campaign promise,” analysts Natasha Kaneva, Prateek Kedia, and Lyuba Savinova wrote.

The markets more broadly dropped on the news. The S&P 500 tumbled 1.1 percent, the Dow Jones Industrial Average is down 1.7 and the Nasdaq is 1.3 percent lower.

“Today, as you can see from the markets, whether it’s the S&P, whether it’s Bitcoin, things have been kind of stable or flat. So there’s a little bit of a wait-and-see approach. Oil is acutely affected simply because Iran is such a significant part of the global oil supply. But thus far, Israel has refrained from hitting in any severe fashion the oil infrastructure of Iran. Should that change, that will obviously have a much more dramatic impact,” Taufiq Rahim, an independent geopolitical strategist and Principal for the 2040 Advisory, told Al Jazeera.

If shipping through the critical seaway were suspended, even temporarily, the International Energy Agency said it is well supplied to release emergency reserves, if needed. However, that comes with the risk of depletion.

There are 1.2 billion barrels in its strategic reserves. The world uses about 100 million barrels of oil per day.

“If it does rise to the level of closing the Strait of Hormuz, well, now that’s going to be the biggest oil shock of all time,” Matt Gertken, chief geopolitical strategist and senior vice president at BCA Research, a macroeconomic research firm, told Al Jazeera.

OPEC Secretary-General Haitham al-Ghais criticised the IEA for its statement that it could release strategic reserves, saying it “raises false alarms and projects a sense of market fear through repeating the unnecessary need to potentially use oil emergency stocks”.

This comes amid increased pressure for the group of oil-producing nations to increase output. Earlier this month, OPEC+ members agreed to raise production by 411,000 barrels for the month of July.

The Strait of Hormuz remains open for now. Countries, including Greece and the United Kingdom, have advised ships to avoid the Gulf of Aden, the body of water between Yemen and Somalia that connects to waterways that are close to Israel, and to log all voyages through the Strait, according to documents first seen by Reuters.

Further escalation on the horizon?

Iran could attack Iraq to reduce the global oil supply to further escalate tensions. In January 2024, Iran attacked Iraq, which it said was in retaliation for armed attacks within its own territory, The New York Times reported.

“We should assume that we’re going to lose both Iranian and Iraqi oil production, which brings us to the point where we could be seeing five to seven million barrels per day taken offline,” Gertken told Al Jazeera.

Gertken believes Iran would do this to provoke the West.

Israel’s attacks on Iranian nuclear and military sites mark a significant escalation in regional tensions, and may reshape Tehran’s nuclear calculus.

The coordinated strikes killed several senior military and security officials, including the head of Iran’s military Mohammad Bagheri, and the head of the Islamic Revolutionary Guard Corps (IRGC), Hossein Salami.

“One of the concerns in attacking the nuclear sites has been that setbacks could lead Iran to reconstitute their operations with a more determined effort to obtain a nuclear deterrent,” said Ali Vaez, an expert on Iran for the International Crisis Group (ICG).

Sceptics validated

Iran has long had an internal debate among reformers and hardliners about whether to reach an agreement with the United States on its nuclear programme.

“[The attacks] likely confirmed the position of hardliners and ultra hardliners who said that Iran was wasting its time to try and negotiate with the West … they said Iran can never negotiate from a position of weakness and appeasement,” said Reza H Akbari, an analyst on Iran at the Middle East Institute (MEI).

Talks between Iran and the US have suffered from a large trust deficit after President Donald Trump unilaterally pulled out of the nuclear deal between Iran and several Western nations, known as the Joint Comprehensive Plan of Action (JCPOA), during his first term in 2018.

The JCPOA was orchestrated by Trump’s predecessor Barack Obama and endorsed by the United Nations Security Council in 2015.

It aimed to monitor Iran’s nuclear programme to ensure it did not approach weaponisation levels. In exchange, some sanctions were lifted from Iran.

While the deal was lauded as an achievement of diplomacy, Israel disapproved of the JCPOA. Ten years later, the US and Iran appeared interested in striking another similar deal.

The former ostensibly did not want to get dragged into a regional war as tensions mounted across the Middle East, while the latter was again looking for much-needed sanction relief.

But Israel’s strikes on Iran, which were reportedly planned months in advance and with US approval, have scuttled any diplomatic solution in the short term, said Akbari.

“It’s hard to imagine that someone in the shoes of Iran’s supreme leader [Ali Khamenei] is not taking the side of hardliners after this,” he told Al Jazeera.

No other options

In response to Israel’s strikes, Iran has launched drones and ballistic missiles at Israel, with some hitting targets on the ground.

In the past, Iran’s deterrence against external aggression relied primarily on its self-described “Axis of Resistance”.

The axis consisted of powerful armed groups across the region, such as Lebanon’s Hezbollah, as well as Syria under former President Bashar al-Assad.

However, Hezbollah’s capabilities were degraded significantly during the peak of its recent war with Israel, which lasted from September to late November last year.

Al-Assad’s fall in December, the culmination of a more than decade-long civil war in Syria, also compromised Iran’s ability to resupply Hezbollah through Syria, as it used to do.

Trump is now exploiting Iran’s weakness by urging it to capitulate to a deal that would see it give up its nuclear programme, said Michael Stephens, an expert on regional response to Iran’s nuclear programme with the Royal United Service Institute (RUSI), a defence think tank.

On Friday, Trump posted on Truth Social that Iran must make a deal before there is “nothing left” of the country and that the next Israeli attacks will be even “more brutal”.

Later that evening, Israel carried out more air strikes on Iran’s military sites and nuclear facilities.

“There are no good options for [Iran] really,” said Stephens.

“Either Khamenei … orders his negotiators to compromise on the nuclear file or … he holds firm [and] more sites are hit and further targeted assassinations of high-level officials take place,” he told Al Jazeera.

“Either way, if Iran decides to sprint towards a bomb, it’s going to be very, very difficult to do that now,” he added.

Last stand

Despite Iran’s military weakness compared with the US and Israel, it is wary of giving up its nuclear programme, analysts told Al Jazeera.

Negar Mortazavi, an expert on Iran with the Middle East Policy Institute (MEPI), said Iranian officials have long referred to the fate of former Libyan leader Muammar Gaddafi, who agreed to give up his nuclear weapons programme in exchange for US sanction relief in 2003.

The deal came after the US President George W Bush had launched his so-called “War on Terror” after the September 11, 2001, attacks, which led to the invasion and prolonged occupation of Iraq and Afghanistan.

At the time, Bush warned his partners and foes in the region that they were either “with us or against us”.

Eight years after Gaddafi gave up his nuclear programme, the US backed a pro-democracy uprising in Libya, which spiralled into an armed rebellion and led to Gaddafi’s overthrow and eventual death.

“The [Libya] scenario is something that Iran has taken notice of, and they don’t want to go down that path,” Mortazavi explained.

She added that Iran may likely pull out from the JCPOA and try to quickly expand its nuclear programme in reaction to Israel’s ongoing assault.

“Just how far and how soon Iran will expand its nuclear programme is unclear,” Mortazavi told Al Jazeera.

Iran launched a retaliatory attack against Israel with a barrage of missiles. Video shows one projectile hitting Tel Aviv. The attack was in response to Israeli strikes that killed top Iranian military leaders and nuclear scientists.

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