The military conflict between Israel and Iran has driven oil prices up by more than $6 a barrel (U.S.) compared to a week ago, with the risk of further increases if tensions escalate.
The market reacted sharply after Israel launched a surprise attack on dozens of targets inside Iran, including nuclear sites, last Friday, sending West Texas Intermediate crude futures — a main global oil benchmarks — soaring more than seven per cent to settle near $73 a barrel, the biggest one-day jump since March 2022.
After a brief pullback on Monday, U.S. stocks are slumping on Tuesday as oil prices resumed their climb, reaching $75 a barrel by mid-afternoon, to close just above $73.
Rory Johnston, a Toronto-based oil market researcher, said that he expects the recent rise in oil prices to take a few weeks to filter through the wholesale market before affecting consumers as the gas pumps.
“We’d expect to see higher price increases for diesel and smaller increases, but still increases to gasoline, as long as this conflict continues to go,” said Johnston.
Iran was the ninth-largest oil producer in the world as of 2023, and the fourth largest within OPEC, producing about 3.3 million barrels of crude oil a day, according to the U.S. Energy Information Administration.
Friday’s attack marked one of the most significant assaults Iran has faced since its war with Iraq in the 1980s, prompting a swift retaliation with missile strikes on Israel.
Markets have been rattled by fears of crude supply disruptions, especially after reports on Saturday that an Israeli strike hit an oil storage facility in Tehran.
U.S. President Donald Trump left the G7 summit in Canada a day early to address the escalating crisis.
As of Tuesday, tensions showed no sign of easing — Israel claimed it had killed a top Iranian general amid continued strikes, while Trump urged Tehran residents to evacuate and demanded Iran surrender unconditionally.
If the conflict is resolved quickly, prices would likely return to previous levels, Johnston said.
However, he warned of long-term and damaging consequences if Israel begins targeting broader Iranian oil infrastructure, such as oilfields, refineries, and giant export terminals like Kharg Island, the country’s largest, which handles nearly 1.5 million barrels a day.
“If they were to do that, prices would move considerably higher, probably another five to $10 a barrel,” said Johnston.
A less likely but increasingly nerve-wracking scenario for oil buyers is that Iran could close the Strait of Hormuz — a narrow maritime choke point between Iran and Oman through which more than 20 per cent of the world’s oil supply passes.
“If we lost that, even temporarily, prices would shoot into the stratosphere,” he said. “In the immediate aftermath, oil would likely surge to well over $100 a barrel — and likely will be higher, the longer it goes on.”
Johnston said that while closing the Strait of Hormuz would also hurt Iran’s own oil exports, if Israel severely damages its export infrastructure, Iran may feel it has nothing to lose.
However, higher oil prices could benefit Canadian economy, said Johnston, as Canada exports much more oil than it consumes.
With files from Star wire services
