Experts warn against oil price spikes despite tensions in Iran
- Recent U.S. military actions in Iran have raised concerns about global oil supply stability.
- While oil prices initially surged, experts suggest the closure of the Strait of Hormuz is unlikely due to economic repercussions for Iran.
- Overall, it seems unlikely that escalating military conflicts will significantly alter the bond-market's performance relative to equities.
In June 2025, geopolitical tensions escalated following U.S. military strikes in Iran, which have raised concerns regarding the stability of the global oil market. On June 21, the strikes were targeted at Iran's nuclear facility, leading to increased fears of a military confrontation that could impact oil supplies. As a significant crude oil producer, Iran effectively controls the northern side of the strategically vital Strait of Hormuz, a waterway crucial for about 20% of the world's daily oil shipments. Though there was an immediate spike in crude prices, analysts noted that a decline followed, suggesting that perceptions of actual threats to oil supply might not justify a sustained rise in prices. Despite the approval by Iran's parliament to potentially close the Strait, many experts assert that such actions would significantly harm Iran's own economy and are therefore unlikely to occur. Previous military conflicts in the region have demonstrated that while the rhetoric around oil supply disruptions can drive up prices in the short term, actual closures or attacks often do not happen due to the severe repercussions involved. Analysts from Eurasia Group even indicated that Israeli air strikes on Iranian oil facilities may represent a more substantial risk for global oil supply, which could lead to Brent crude prices exceeding $80 per barrel. The recent escalation follows years of bond underperformance in financial markets, highlighting a significant shift in investor behavior amidst geopolitical crises. With yields on long-term Treasuries under pressure, participants in financial markets are left wondering if heightened conflict scenarios might eventually shift the balance in favor of bonds over equities. Historical analysis suggests that, contrary to expectations, U.S. Treasury yields do not typically decrease with rising geopolitical risks, particularly when fuel prices show an upward trend. In summary, while military confrontations such as those between the U.S. and Iran can create substantial uncertainty and volatility in global oil markets, the likelihood of actions that would lead to a functional closure of the Strait of Hormuz remains low, and actual repercussions on oil prices may not reflect the anticipated fears in a consistently fluctuating geopolitical climate.