Middle East Conflict Threat: How the US-Israel-Iran War Is Disrupting Global Oil Supply

The conflict between Israel and Iran is not new, tensions in this region have existed for decades due to political, religious, and strategic differences. However, the situation became much more serious after the October 2023 attack by Hamas on Israel, which led to a large war in Gaza.

Iran has long supported groups like Hamas and Hezbollah, so the Gaza war increased tensions between Iran and Israel. Through 2024, both sides were involved in what experts called a “shadow war,” where they carried out cyberattacks, targeted strikes, and attacks on each other’s interests in countries like Syria and Iraq. The rivalry also continued because of concerns about Iran’s nuclear program and its growing influence in the Middle East. The situation worsened in June 2025, when Israel launched major airstrikes on Iranian nuclear and military facilities, leading to a short but intense 12-day conflict in which Iran responded with missiles and drones, while the United States supported Israel and also attacked some Iranian nuclear sites.

Tensions did not fully calm down after that, and fast-forward to February 2026, the conflict escalated again when the US and Israel launched large airstrikes on Iran. During these attacks, Iran’s Supreme Leader Ali Khamenei was reportedly killed, which made the conflict even more serious. Iran then responded by launching hundreds of missiles and drones at Israel, US bases, and energy infrastructure in the region, while also threatening shipping through the Strait of Hormuz, a route through which about 20 per cent of the world’s oil supply passes, creating fears of major disruptions in global energy markets.

Oil Market Faces Supply Risks

The ongoing conflict in the Middle East has started to affect crude oil production and supply in the region. Because shipping routes are being disrupted, storage facilities for oil and gas in the Gulf are filling up quickly. When tankers are unable to arrive and transport the oil, producers have limited space to store additional output. As a result, some oilfields in Iraq and Kuwait have already reduced production, and the United Arab Emirates may soon follow. If oil tankers continue to face delays in reaching ports, companies may be forced to temporarily shut down some oilfields. Once production stops, bringing it back to normal levels can take days or even months depending on the condition and age of the oilfields.

At the same time, Iran has been targeting energy infrastructure in the region, including refineries and export terminals, which has forced several facilities to shut down. Qatar, which supplies around 20% of the world’s liquefied natural gas (LNG), has also warned that some gas exports may be affected after drone attacks disrupted its operations, and it may take about a month to return to normal production levels. Meanwhile, Saudi Aramco has said it could restore production within a few days if the Strait of Hormuz reopens, but a longer disruption could have serious consequences for global oil markets and the economy. Economists warn that these supply issues could push energy prices higher and slow down economic growth worldwide.

Limited Storage Capacity Forces Oil Production Cuts

Due to ongoing shipping disruptions in the Gulf region, oil and gas storage facilities are filling up quickly. Since tankers are not arriving to transport the oil, producers are running out of storage space and are being forced to reduce production. Oilfields in Iraq and Kuwait have already started cutting output, and the United Arab Emirates may soon follow. Industry sources say that if vessels do not arrive soon to carry the oil, more producers across the region may have to temporarily shut down their oilfields.

The Average Daily Range for the 15-period in WTI Crude Oil has reached the highest level since March 2 following the February 28 airstrikes by the United States and Israel on Iran. Before the conflict, the average daily movement was around USD 1– USD 2, but since the war began the range has expanded sharply to around USD 6 – USD 8, indicating a significant rise in market volatility.

Higher Crude Oil Prices Raise Costs for Businesses and Households

The ongoing conflict between the United States, Israel, and Iran has created serious concerns in the global oil market. Because of the shipping risk, major producers like Saudi Arabia, the United Arab Emirates, Iraq, and Kuwait have had to suspend millions of barrels of oil shipments, creating supply concerns and pushing prices higher.

For industries, higher crude oil prices mean rising operating costs. Sectors that depend heavily on fuel and petroleum products, such as transportation, aviation, Logistics, manufacturing, and chemicals, are likely to face increased expenses. Companies using crude oil derivatives, like paint, tire, and petrochemical manufacturers, may see their profit margins shrink if they cannot pass higher costs to customers. In addition, disruptions in global shipping routes are increasing freight costs and causing delays in deliveries, which can disturb supply chains and affect production in several industries.

For consumers, the main impact will be higher fuel and transportation costs. When crude oil prices rise, the cost of petrol, diesel, and aviation fuel usually increases, which eventually raises the prices of many goods and services. Higher fuel costs also increase the cost of transportation and electricity generation, leading to higher household expenses. As a result, people may face rising inflation and reduced spending power, as more of their income goes toward essential expenses like fuel, transport, and utility bills.