By Matt Peterson
While oil prices shot up Friday in response to Israel's attack on Iran, the market's overall response has been relatively muted. But the risk of a major shock is increasing.
Israeli Prime Minister Benjamin Netanyahu said the assault will continue "for as many days as it takes to remove this threat." That means the conflict may not follow similar geopolitical scares where prices quickly return to normal once the immediate threat passes.
Instead, a long-lasting rise in oil prices could be coming, bringing damage to the global economy.
"The probabilities are now going all the way toward a major oil shock," said Matt Gertken, chief strategist at BCA Research.
Between five million and 20 million barrels a day of oil supply could be removed from the market, Gertken said, should the conflict continue to escalate. He expects it will.
Oil prices rose 6%, to $72 a barrel on Friday. That is below highs for the year set in January but sharply higher than a recent trading range in the low $60s. Higher oil prices tend to slow the U.S. and global economies and could reignite inflation.
The path of the conflict from here depends on Israel's objectives, Iran's response, and whether the U.S. continues to stay disengaged from Israel's military operation.
Analysts have focused on the status of Iran's nuclear infrastructure in the wake of the attack. Israel said it initiated the attack because it had assessed that Iran was about to cross a threshold that would give it a functional nuclear weapon. Israeli leadership decided that existential threat was intolerable.
Despite the assault Friday morning, much of Iran's enrichment capability remains intact. Israel's initial strikes damaged Iran's enrichment facility at Natanz but not Isfahan and Fordow, two other key sites, said Rafael Grossi, the head of the International Atomic Energy Agency. Fordow is buried deep underground, and analysts have long argued that only the U.S. has the weaponry to destroy it in an airstrike; Israel cannot do it alone.
That raises a difficult question: If Israel was willing to cross the political Rubicon of attacking Iran's nuclear program, why would it leave an essential piece of nuclear infrastructure intact?
Israel may yet attack Fordow and other undamaged sites. Or it could be trying to push the U.S. to do so.
"From the Israeli point of view, the objective is to set back the nuclear program, undermine the regime, and force the Americans to get involved," Gertken said.
The Israelis "know that Trump and the U.S. establishment are not in favor of regime change," Gertken said. "What they'd like him to do is finish Fordow, finish Natanz, and finish other facilities."
Secretary of State Marco Rubio said as the attack unfolded that it was a unilateral Israeli operation, without U.S. involvement. That could change.
Iran's hard-liners "are all DEAD now, and it will only get worse!" President Donald Trump posted on social media Friday morning, urging Iran to negotiate. Many of Iran's top military leaders were killed in the attack, though its political leadership, including Supreme Leader Ayatollah Ali Khamenei, remain alive and in control.
But Khamenei's control will be tested by the Israel operation. Iran's theocratic leadership is deeply unpopular and retains power by force.
"Unless Israel changes what it's targeting in days ahead, this is a regime-change strike with just enough targeting of nuclear infrastructure so [Israeli Prime Minister Benjamin] Netanyahu can depict it as an act of preemptive self-defense," Jeffrey Lewis, a nuclear-weapons expert at the Middlebury Institute, wrote on social media. "For the operation to succeed, I think the regime has to fall," he said.
The severity of the threat to Iran's regime will put it under intense pressure to retaliate. Iran has already launched drone attacks on Israel, which caused little damage. With U.S. assistance, Israel has been able to largely defeat Iran's missile and drone attacks in recent months. Iranian ally Hezbollah was neutralized in earlier Israeli operations, cutting off another potential avenue of Iranian retaliation.
Among Iran's few remaining options for retaliation are attacks on energy and global shipping. One of Iran's trump cards in any conflict has been the possibility that it could seek to force a closure of the Strait of Hormuz, a chokepoint along a crucial route for global shipping. More than 20 million barrels a day of oil, or about 20% of global consumption, passes through the strait.
Iran could also direct its military proxies in Iraq to attack local oil pipelines, threatening Iraq's five million barrels a day of oil production. It could enlist the Houthis in Yemen to renew their assault on shipping. Iran could attack Saudi Arabia directly, as it has in the past, attempting to damage its 10 million barrels a day of production. Or it could seek to directly attack U.S. institutions and personnel in the region.
Iran hasn't yet played those cards, perhaps because it lacks the capacity, or because it fears the worst case of U.S. involvement that wipes out any remaining nuclear and military infrastructure. But with Israel's operation continuing, it is difficult to rule out those worst-case scenarios.
Some analysts believe the U.S. will be able to resist Israeli pressure to join the attack.
"The only thing in my opinion that gets us to attack Iran is they kill Americans, or try to," said Elliott Abrams, a senior fellow at the Council on Foreign Relations and former special representative for Iran and Venezuela in the first Trump administration.
The Israelis are "not attacking economic targets," he said, and have shown restraint in not targeting political figures.
Trump may have many Iran hawks in his administration, Abrams said, but the president isn't one of them.
That leaves open an avenue for negotiation. If Iran essentially sued for peace without damaging oil supplies, the price of oil would likely ease.
But Iran is now pledging to retaliate, and the Israeli assault is ongoing. That will raise the risk of higher oil prices and broader economic damage as long as the conflict continues. So far there is no clearly defined end point.
Write to Matt Peterson at matt.peterson@dowjones.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
June 13, 2025 14:32 ET (18:32 GMT)
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