A twelve-day Middle East conflict and its impact on oil prices

The recent twelve-day conflict between Iran and Israel (June 11-23) was initially expected to be yet another short-lived regional flareup. However, it quickly escalated into a potential global crisis when the United States (US) intervened on June 22 by bombing Iranian nuclear sites. In response, Iran launched missile attacks on US airbases in Qatar, dramatically changing the dynamics of the conflict.

- Dr. T. K. Jayaraman

As tensions peaked, calls for a ceasefire emerged from several Islamic nations in the region, including Qatar. These nations also backed Iran’s next strategic move: closing the Strait of Hormuz to halt crude oil shipments. Iran’s parliament had just approved this measure. A ceasefire is currently in place as of this writing.

Whether or not the US decision to intervene was politically appropriate will remain a matter of debate. It has also raised constitutional concerns, with some legal scholars arguing that the President lacked authority to initiate military action without prior congressional approval.

Economic Impact of the Conflict

This article focuses on assessing the economic impact of the conflict, particularly the disruption to global crude oil, refined petroleum products, and LNG supplies. Countries without substantial domestic mineral or oil resources—especially those reliant on the Organization of the Petroleum Exporting Countries (OPEC)—face heightened risks.

India, for instance, imports 80% to 90% of its total crude oil and LNG requirements. Of these imports, nearly 47% come from Saudi Arabia and the United Arab Emirates, with much of it passing through the Strait of Hormuz. Of the 5.5 million barrels of oil consumed daily in India, approximately 1.5 million barrels transit this vital waterway. The Strait of Hormuz, only 23 kilometers wide at its narrowest point, also facilitates energy exports to other Asian nations, including China and those in the Pacific region.