Iran-Israel conflict: How oil market brushed off worst fears

Before Israel struck Iran on June 13, Brent crude was hovering around $69 per barrel. The attack — followed by US involvement over the weekend — briefly pushed prices up by about $10. Yet, the rally quickly fizzled out, as markets interpreted America’s role as a sign that Iran was unlikely to escalate. When Iranian missiles aimed at a US base in Qatar caused no damage, traders read it as another sign that Tehran was looking to wind down tensions. Traders noticed a familiar pattern from Iran — launching attacks aimed less at inflicting damage and more at appeasing its domestic audience. The ceasefire announced on Tuesday put a final lid on fears of disruption.Today’s oil market is far more resilient than in the past. A year ago, crude was trading around $84 per barrel; today, it’s closer to $68, reflecting a well-supplied market. OPEC+ members, led by Saudi Arabia, have been increasing output since May, providing a cushion against potential supply shocks. Meanwhile, the global oil landscape has evolved — the US has emerged as the world’s largest producer, pumping roughly 13 million barrels a day — well ahead of Saudi Arabia and Russia, which each produce about 9 million. Importantly, the US and other advanced economies also hold large strategic reserves. The Biden administration tapped these reserves for extended periods to counter supply disruptions and keep prices in check — a tool that a Trump administration could similarly use if needed.The biggest concern was that Iran might close the Strait of Hormuz, a vital channel for global oil and gas shipments. As Houthis have demonstrated, even a handful of missile attacks can scare away commercial ships. But the risk of harsh US retaliation — and the possibility of alienating neighbors and key importers like China — deterred Tehran from going down that path. A closure could have also cut Iran's own oil revenues and blocked imports of essentials.Iran’s muted retaliation came down to hard realities. The risk of a larger war — one that could wipe out its leadership and plunge the country into long-term chaos — was too high. The example of Iraq, which suffered years of instability following the 2003 US invasion, would have weighed heavily on Tehran. Meanwhile, Israeli strikes had already degraded its military capabilities, making it no match for US forces. Its symbolic missile attack on a US base in Qatar caused no damage and was seen more as a face-saving measure than an escalation.Years of US sanctions have crippled Iran’s economy. Its oil sales are restricted, reliant mainly on deep-discounted sales to China. A prolonged conflict could have wiped out its remaining export revenues and pushed its fragile economy closer to the brink.Iran’s traditional regional support has weakened. Hamas and Hezbollah, its long-standing proxy forces, have been decimated by Israeli attacks. Syria has fallen to unfriendly forces. Meanwhile, the US has strengthened ties with Saudi Arabia — Iran’s biggest rival — and Russia, bogged down in Ukraine and weakened by Western sanctions, has lost its ability to project influence. Even China, critical of US aggression, has been unwilling to deepen its commitment to Iran.