When Israel’s war against Hamas began a year ago, concern about the economic impact it could have on the wider global economy focused on the price of oil.

Fears of a generalized war in the Middle East, with Iran getting involved that could hurt its oil production and exports, were reasonable, given that Tehran supports Hamas, as well as Hezbollah in Lebanon and the Houthis in Yemen to act against Israel.

Because Iran did not seem willing to engage directly in a war, oil prices moved downward as conditions of global oversupply were created.

This was until OPEC stepped in and further reduced its own production. After the intervention of OPEC, which mainly includes Arab countries, the price of Brent moved higher for a while, near $85 a barrel, but then started to slide again. In the third quarter of 2024, Brent fell 17% and especially in September by 9%, retreating below $70.

It has thus been shown that OPEC no longer has the power it had in past decades to keep prices at artificially high levels for a long time, and this is mainly due to the large increase in production from countries outside the cartel, especially the US.

Also, the decline in production from OPEC countries is depriving them of valuable revenue, to the extent that they cannot meet their maximalist unofficial target of a price of $100 a barrel. They therefore have an incentive to increase production, which Saudi Arabia recently signaled it would do from December, pushing prices below $70.

Added to these two factors was limited demand from China due to the slowing growth rate of its economy, clearly creating conditions of oversupply of the “black gold” in 2025. The backdrop was so clear to investors that betting on further oil price declines reached record levels recently.

All this, however, happened before the dramatic new escalation of the conflict in the Middle East in recent days. The transfer of the battlefield from Gaza to Lebanon and repeated heavy strikes on Hezbollah led Iran to launch a major attack on Israel, with some 200 missiles, last Tuesday.

Immediately after the attack, the oil prices rose as much as 5%, but then the increase was limited when the attack ended, however, on Thursday they rose again by 4% as the US president, Joe Biden, left open the possibility of an Israeli attack on Iranian oil facilities, what markets feared at the start of the war.

The question of where crude prices go from here will largely depend on what Israel’s response to the Iranian attack will be. Will it actually strike Iran’s energy facilities and to what extent? Will it deliver other major blows that will lead Tehran to respond and is likely to block tanker traffic in the Strait of Hormuz at the entrance to the Persian Gulf, through which 20% of oil exports pass?

US banks, including Goldman Sachs and Citi, believe prices will rise by $20 a barrel, approaching $100, if a significant part of Iran’s oil capacity, amounting to about 4 million barrels a day or 4% of world production, is damaged.

Several analysts and investors believe that a major energy infrastructure disaster, which would significantly raise prices, is not something the US wants, especially in the current election season. Some note that other OPEC countries could fill the gap that a reduction in Iranian exports would leave, so the impact on prices would be limited. But a war is always unpredictable.