The war between Israel and Iran in 2025 has sent shocks through world markets and trade flows. What once played out in the background has now surged to the front pages, as missile exchanges, naval threats, and proxy actions disrupt key trade arteries. In this article, we discuss how oil prices, shipping lanes, supply chains, inflation, and financial markets have reacted so far. Then we consider what may come next and share a brief analysis on how companies and governments might respond.
Oil at the Heart of the Crisis
Since June 2025, Iran has threatened to close the Strait of Hormuz in retaliation for Israeli strikes on its nuclear sites at Natanz and Isfahan. That narrow channel carries almost 20 percent of the world’s oil and 25 percent of its liquefied natural gas every day. Even though the waterway remains open, traders have already priced in a conflict premium.
After Tehran’s parliament voted on June 22 to back a closure, Brent crude spiked nearly 4 percent to $97 per barrel, while U.S. light crude rose over 4.3 percent. Analysts warn that a full blockade could push prices above $130 per barrel if it lasts more than a few weeks. Natural gas futures have climbed too, as underwriters hike tanker insurance by up to 30 percent after repeated Red Sea attacks on merchant vessels earlier this year.
Energy firms and governments are now scrambling to lock in cargoes at current rates. India and China have signed short-term LNG deals at a premium, and others are tapping strategic reserves to smooth immediate needs. Yet these moves can only cover a fraction of daily demand. If the war drags on, every refinery and utility will feel the squeeze.
Shipping Corridors Under Siege
Trade ships now face a more dangerous voyage. The Strait of Hormuz, Bab al-Mandeb at Yemen’s coast, and even waters off Gaza are under threat. Major carriers are rerouting via the Cape of Good Hope, adding up to two extra weeks at sea and significant fuel costs. Charter rates for crude tankers in the Gulf region have almost doubled in a fortnight, while container lines pay heavy premiums for longer paths.
Operation Prosperity Guardian—a coalition of U.S., U.K., French, and regional naval forces—has stepped up convoy escorts. Yet that protection comes at a price passed on to shippers and, ultimately, consumers. Small exporters face the harshest blows: delayed deliveries, higher fees, and uncertain schedules.
Ports in Israel have also slowed down. Air-raid drills and drone alerts have become daily routines, forcing some terminals to pause operations. The delays ripple outward, as schedules slip and backups form at feeder hubs in Europe and Asia.
Strained Global Supply Chains
After years of pandemic fallout, global supply chains still run on tight margins. The new conflict adds a dangerous twist. Automotive, electronics, and heavy machinery sectors depend on steady fuel, precise timings, and low freight costs. A sudden jump in oil prices and longer sea journeys unsettle just-in-time systems.
In Southeast Asia, where factories import raw materials and export finished goods at slim margins, any delay can lead to canceled orders or reduced production. Some plant managers report idle days while they wait for shipments. Workers face shorter hours and, in worst cases, layoffs.
Meanwhile, fears of instability spur stockpiling. Japan, South Korea, and other import-dependent nations are tapping reserves. That behavior drives up spot prices further, creating a vicious cycle that could last for months if no diplomatic solution emerges.
Inflation’s New Surge
After a brief lull in early 2025, inflation fears are back. Central banks from Frankfurt to Delhi are on edge as energy-led price pressures mount. An oil price above $110 per barrel can add up to 1.2 percentage points to headline inflation, and emerging markets feel it the hardest. In many developing countries, food and fuel make up over half of consumer spending.
In the U.S., Q3 inflation forecasts have risen to about 3.6 percent, driven by higher gasoline and diesel costs. The euro area and U.K. also expect rebounds in headline rates. Core inflation remains under control for now, but the risk of a second-round effect—where wages chase rising prices—looms large.
At the same time, currencies of oil-importing nations are weakening. The Indian rupee and Japanese yen have slid against the dollar in recent days, making imports more expensive and further stoking domestic price rises.
Financial Markets Grow Cautious
Stock markets tend to be the first to react, and investors have grown wary. Global indices dipped in the days following escalations, with U.S. futures falling more than 600 points after strikes on Iran’s heartland. The Nasdaq endured its worst week since March, and European bourses also lowered.
At the same time, safe-haven assets have rallied. Gold trades above $2,350 an ounce, up nearly 12 percent from May, while the U.S. dollar index has climbed 2.4 percent since early June. Yields on U.S. Treasuries have fallen as buyers seek secure returns amid uncertainty.
Trade finance is under fresh scrutiny. Banks are re-evaluating exposure to high-risk goods and counterparties in the Middle East. Sanctions on Iranian oil and shipping could fragment payments systems, pushing some nations toward alternatives like China’s CIPS or blockchain-based platforms.
Proxy Skirmishes and Wider Fallout
This war extends far beyond Israel and Iran. Hezbollah in Lebanon has launched cross-border raids, drawing Israeli retaliation that risks drawing Syria and Iraq deeper in. In Yemen, Houthi rebels have intensified Red Sea attacks, further disrupting a key export route.
Regional oil producers—Saudi Arabia, the UAE, and Iraq—are caught in a bind. They have maintained a formal neutrality, but their own export timelines face threats from security risks at offshore platforms and ports.
Global powers are now ramping up diplomacy. China and India, which together import over 60 percent of Middle Eastern energy, have urged restraint. They fear that long-term disruption could stall economic growth and erode political stability.
Three Paths Forward
Looking ahead, three outcomes seem plausible:
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Ongoing Proxy Conflict. Limited attacks and naval skirmishes persist without full war. Markets stay volatile, but trade adjusts to higher costs.
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Strait Closure. Iran shuts the Strait of Hormuz. Oil soars above $130–$150 per barrel. Inflation spikes and vulnerable economies face recession-like strains.
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Diplomatic Breakthrough. Talks lead to a ceasefire and partial de-escalation. Markets calm, but deep mistrust remains, and security costs stay elevated.
At present, the first scenario is in play. But tensions could tip either way at any moment.
What Businesses Can Do
In 2025’s fragile world, companies must treat risk management as ongoing work, not a one-time fix. Here are steps to consider:
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Diversify Supply Chains: Shift some production or sourcing away from high-risk regions.
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Lock in Energy Deals: Use forward contracts to cap oil and gas prices for the medium term.
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Build Inventory Buffers: Keep extra stock of critical inputs, even if it ties up working capital.
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Strengthen Finance Lines: Secure trade finance with multiple banks and explore alternative payment systems.
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Stay Informed: Monitor geopolitical developments daily and test different shock scenarios.
These moves cannot erase all risks, but they can lessen the blow if the conflict widens or prolongs.
Short Analysis and Personal Insight
In my view, the Israel-Iran war of 2025 marks a turning point for global trade. It shows that—even in a world seeking to diversify away from fossil fuels—oil and key maritime chokepoints remain vital. The episode reminds us that geopolitics can undo years of supply-chain gains in weeks.
Leaders who treat risk as an afterthought will find themselves scrambling when the next flare-up comes. Instead, companies and policymakers must embed scenario planning into everyday decisions. The shocks we see now could become the norm if tensions persist. By accepting that global trade sails through rough political waters, not above them, we can build systems that bend without breaking.
Sources: Al Jazeerah
