Global markets are in turmoil as a direct and unprecedented military conflict has erupted between Israel and Iran, sending shockwaves across the world and causing an immediate spike in global oil prices. The escalating series of missile and drone attacks, which began in mid-June 2025, represents a perilous new phase in the long-simmering shadow war between the two regional adversaries, threatening to ignite a wider, devastating war.
The conflict, which has seen both nations target sensitive military and strategic sites, has thrown the stability of the Middle East into question. Initial reports from international news agencies like the Associated Press and Al Jazeera confirm that Israel has conducted strikes near what it alleges are Iranian nuclear and military facilities, while Iran has retaliated with barrages of missiles and drones aimed at key Israeli locations.
The immediate economic fallout has been most pronounced in the energy markets. Oil prices leaped by as much as 7% following the initial Israeli attacks. Market analysts are now factoring in a significant “geopolitical risk premium” of between $5 to $10 per barrel, reflecting the profound uncertainty and the potential for severe supply disruptions. As of Tuesday, June 17, 2025, Brent crude, the international benchmark, continues to trade at elevated levels.
Strait of Hormuz: The Global Oil Choke Point in the Crosshairs
Central to the market’s anxiety is the precarious situation in the Strait of Hormuz. This narrow waterway, separating Iran from the Arabian Peninsula, is the world’s most critical oil transit chokepoint. Approximately one-fifth of the world’s total oil consumption passes through this strait daily.
Iran has long threatened to close the Strait of Hormuz in retaliation for any military action against it. Such a move would be catastrophic for the global economy, choking off a significant portion of the world’s oil supply and leading to a dramatic surge in prices far beyond the current levels. While Tehran has not yet taken this drastic step, the direct military exchanges with Israel have heightened fears that the strait could become a theater of conflict. Reports are already emerging of increased electronic interference with maritime navigation systems in the region, adding to the risks for commercial shipping.
Geopolitical Fallout and International Response
The direct confrontation has been met with international alarm, with world leaders calling for immediate de-escalation. The United States has publicly stated it will not participate in joint military action with Israel against Iran and is pushing for a diplomatic resolution. However, the situation remains highly volatile, with both Israeli and Iranian leaders under immense domestic pressure to demonstrate strength.
Geopolitical analysts from institutions like the German Marshall Fund and S&P Global Ratings have warned of severe consequences. A wider conflict could not only devastate the regional economy but also have far-reaching implications for global trade, security, and diplomatic relations. The conflict tests the stability of the entire region, with the potential to draw in other state and non-state actors.
For energy-importing nations like Sri Lanka, the developments in the Middle East are a cause for grave concern. The sharp rise in global oil prices will inevitably translate to higher domestic fuel costs, exacerbating inflationary pressures and posing a significant challenge to economic stability. The world now watches with bated breath, hoping that diplomacy can pull the region back from the brink of a full-scale war that would have dire consequences for all.