Middle East War: What It Means — and Doesn’t — for Global Oil Markets

The Iranian strike was reportedly intercepted by Qatar, and no injuries were recorded. Also, the price of oil… fell.

It was once widely believed that a conflict in the Middle East would cause oil prices to skyrocket. No more.

Javier Blas of Bloomberg Opinion and presenter Sarah Holder discuss the US’s rise to become the world’s largest oil producer and how the conflict in Iran is a reflection of this new power dynamic in today’s Big Take podcast.

This is a slightly altered transcript of the exchange: Sarah Holder Iran launched missiles at a US airfield in Qatar on Monday in retaliation for the US raid on its nuclear facilities over the weekend.

No injuries were reported, and Qatar claimed to have intercepted the Iranian strike. And the price of oil… fell.

Javier Blas: One of the most significant stories regarding the oil market’s response to the Middle East war is what hasn’t occurred.

Holder: Javier Blas writes for Bloomberg as an opinion columnist. For the past 25 years, he has covered the oil markets. Additionally, he claims that oil prices have increased following previous outbreaks of conflict in the Middle East. Not this time, though.

Blas What was the most political danger to the oil market, you asked? Israel, Iran, and the United States were all parties to an open battle. And what effect would the oil market have? Three-digit oil was the response: Whether it was a 100, 150, 200, or 250 was up for debate. And it hasn’t occurred.

Holder: Brent oil futures were trading at almost $80 per barrel when the market opened. Additionally, oil prices began to decline after Iran attacked the US airbase on Monday afternoon, briefly going below $70 per barrel.

Blas: It’s less than it was at the beginning of the year. It is less than the price of roughly 20 years ago and lower than where we were when the conflict first started in 2023 with Hamas’s attack on Israel.

Holder: Javier explains that oil prices were already less susceptible to this battle than one might anticipate, even while it tracks that they would decline since markets saw the Iranian attack as a deescalation, which observers claim it was. because the United States is a relatively new and powerful player in the world oil market.

This is the Big Take from Bloomberg News, and my name is Sarah Holder.

What the Middle East war means and doesn’t imply for the world’s oil markets is today’s topic on the podcast.

According to Javier Blas, an opinion contributor for Bloomberg, there has long been a belief that Middle East instability equates to rising oil prices. It was inevitable that one would lead to the other.

Blas: Due to the importance of the Middle East, and especially the Strait of Hormuz, to world supply, it has long been believed—and true—that whenever there has been a conflict in the Middle East, oil prices have gone up. Almost every time a conflict occurs in a region, prices will rise simply because the market was pricing in the possibility of a disruption and because the region is crucial to the world’s supply.

Holder: This time, however, it hasn’t occurred. According to Javier, there are two explanations. First, the fear of a potential supply disruption has taught oil markets not to raise prices. Because those disruptions haven’t happened very often.

Blas: The second reason is that, in what I will refer to as the “post-US shale revolution era,” we are witnessing Middle East violence for the first time. Twenty years ago, the United States produced about 7.5 million barrels per day; today, it produces about 21 million barrels per day. Additionally, it is no longer as reliant on the oil supply from the Strait of Hormuz. Therefore, from a psychological perspective, traders may believe that they don’t need to take on as much price risk for a possible disruption when they are less dependent on that waterway.

Holder: As you explain, the US shale revolution plays a huge role in the narrative. Currently, about one-fifth of the world’s oil is produced in the United States. More than Russia, that is. More than Saudi Arabia, that is. Could you elaborate on the events over the last 20 years?

Blas: About 20 years ago, some American oil engineers and businesspeople attempted to break through a novel kind of rock known as shale, which sparked the shale revolution. They found that in order to access those extremely tiny shale rock formations, they could drill vertical wells, then rotate the drill bit 90 degrees and go horizontal. The issue is that the oil won’t flow until the rock is cracked, and they found that this is what we now refer to as hydraulic fracturing, or fracking, which involves injecting chemicals, water, and sand underground at extremely high pressure until the rock fractures and the oil flows.

Holder: So one of the effects of the shale revolution is that the US is less reliant on Middle Eastern oil. What has the reaction been in the Middle East then to the dominance of US shale?

Blas: The reaction has been several times to try to kill that revolution. Bring prices down. That’s what OPEC led by Saudi Arabia did in 2014 to 2016 – trying to bring prices down to make shale uneconomic. And now, I think that what the Saudis have discovered is that shale continues to grow. And they’re trying to increase production to recover market share that they have been losing against shale. And that is also very interesting right now because the crisis has come at a time where shale production was booming and Saudi production was also increasing in an effort to recover market share.

Holder: How is that sort of impacting strategy and geopolitics when it comes to this conflict? Like why is this such a game changer for American presidents, for example, thinking about intervening and entering conflicts in the Middle East? Did the fact that the US is less reliant on oil from Iran play into President Trump’s decision to strike Iran this weekend?

Blas: Every time that the US has faced conflict in the Middle East, the White House knew that the consequence of that was gonna be an increase in oil prices, and that means more expensive gasoline in America. And I spoke to senior advisors on oil for former President George W. Bush and Barack Obama, and they told me that they knew that however they intervened, there was gonna be a price. And the price potentially was a recession in America because of high inflation, high interest rates, and that always acted as a brake. I think that for the first time, President Trump perhaps is the first American president that doesn’t really need to worry as much. Yes, the oil price can be still painful, and I don’t think that President Trump enjoys anything close to $75 a barrel, but he can intervene in the US without almost being certain that the country is gonna go into recession.

Holder: Well, it’s interesting. This morning, Donald Trump posted on Truth Social, “DRILL, BABY, DRILL!!!” telling the Department of Energy to to start drilling more, to keep oil prices down. What did you make of that? What did that mean?

Blas: So, President Trump wants two things at the same time that cannot happen. Either you have $50 oil and not much drilling, or you have $75 oil and a significant amount of drilling, and I think $75 is about right. It is good enough for the shale industry in places like Texas, New Mexico, oil companies are gonna be doing well, they’re gonna be drilling, but the price is not high enough to be a problem for the economy and certainly not high enough that this summer driving season people are gonna be complaining about high gasoline prices.

Holder: So you think Trump should be happy with $75 a barrel?

Blas: Let me put it this way. I think that many other presidents in the White House facing a Middle East crisis will have been happily take $75 a barrel. I mean, every other time the president will have been facing a $100 oil, which is really painful for the economy, $75 is just fine. Take the win, move on.

One of the most amazing things that is happening right now in the market is that if you look at the price of regular gas in the United States today with all what has already happened in the Middle East it’s lower than it was on the last period of heavy driving in America around the Easter holiday. $3 a gallon, $3-2, $3-3 a gallon, is a quite reasonable price if you consider the experience that we have in past years. When Russia invaded Ukraine, the price of gasoline in the United States went all the way to $5. I don’t see that happening again during this crisis, and I will expect that prices stay around this level for the next few weeks.

Holder: After the break: What leverage Iran still has over global oil markets – and why the Strait of Hormuz isn’t the biggest concern.

Holder: So far, the war between Israel and Iran hasn’t dramatically increased the price of oil – even after the US bombed Iranian nuclear facilities this weekend. But as the conflict has escalated, so, too, have fears that Iran might try to up the ante by closing the Strait of Hormuz. So, I asked Bloomberg Opinion Columnist Javier Blas to tell us about this unique waterway that transports so much of the world’s oil.

Blas: The Strait of Hormuz is very important for the oil market. For one reason. It is the choke point, the waterway for which 20% of the world’s oil flow into the international market. All the oil from Iran, most of the oil from Iraq, significant portion of the Saudi oil, Emirati oil, all of the oil from Kuwait, they need to go through the Strait of Hormuz to reach global oil refineries. If the Strait of Hormuz was to be closed completely, oil prices will rise significantly because we will lose a significant chunk of supply. And as I said, 20% of the world’s oil goes through it. These are huge tankers, you cannot miss them.

Holder: How could Iran shut down the Strait of Hormuz? Does it need UAE’s buy-in?

Blas: No, they can do it alone. If Iran wanted to shut it down the strait for a brief period, they can do it. They need to turn to violence. So it will involve probably, firing missiles against oil tankers. I. Uh, which will prompt every other oil tanker to turn around and avoid the strait. They can mine, use sea mines to mine, the waters of the straight. So there are a number of elements that they could deploy to try to close it, but obviously every other country in the region and significantly the United States and perhaps China will react to that and try to reopen the Strait right away.

Holder: On Sunday, Iranian and state TV reported that Parliament has approved a measure to close the strait. That doesn’t mean it’s happening. They need more than just parliamentary approval, but can you game it out for us? What would shutting down the strait mean for global trade, even short term?

Blas: Every day that we were to lose 20% of the global supply will increase the price of oil significantly. And if we were to be only a few days of the shutdown, there will be panic buying, particularly for countries that depend on Middle Eastern oil for a lot of the supply-I’m thinking about China, India, Japan, South Korea, Taiwan.

So those countries will go into the market that will buy oil from whatever other origin or whatever other price, and the price will go up a lot. Will the price stop at a hundred dollars? No, I don’t think so. I think that will go significantly higher than a hundred dollars.

Holder: We would get our triple digit oil prices.

Blas: Yeah, we will have, absolutely, we will have triple digit oil prices, but how likely is that? Very, very unlikely.

Holder: Just so I understand, what are Iran’s incentives to close the Strait of Hormuz right now in the middle of this conflict and what’s the main incentive not to close the Strait?

Blas: The main incentive for Iran to close the Strait of Hormuz will be to weaponize oil, to turn oil into part of the conflict. Potentially to force the United States to talk to Israel, so Israel stops the bombing and the United States thinks twice in the future about bombing Iran. It is just using oil as a weapon and force, probably a diplomatic negotiation around the world. That is the biggest upside for Iran to close the Strait of Hormuz.

Holder: So saying, ‘you thought you were insulated from oil supply, but you’re not – like, you really need us.’

Blas: Yeah. And, and it just – generally the United States, even if the United States suffers, not a lot. The United States has an interest in healthy global economic growth, so other allies will suffer. Japan will suffer, Korea will suffer, the European countries will suffer, and typically that’s not in the interest of the United States.

The biggest downside for Iran is that, you close the Strait of Hormuz, no one can export oil, and that includes Iran. And for the Iranian regime, oil is really the cash cow. That’s where the money is coming. So yes, Iran will close the Strait of Hormuz and it will create trouble for everyone else, but it will shoot themselves on the foot because they cannot sell their oil.

It will also hurt some of the biggest allies of Iran like China and China will not really enjoy that, and I don’t think that Iran can afford losing diplomatic support from China right now.

My personal view is that Iran will not close the Strait of Hormuz. I don’t think that they have – when you put everything on balance – a good incentive to do it. Can it happen? I suppose that one should not say never, but I don’t see it.

Holder: So maybe the closing the Strait of Hormuz isn’t the biggest concern that we should be thinking about right now. Are there other major risks that war in the Middle East raises for the global oil trade or, or energy markets overall?

Blas: I do think that there are other big risks and perhaps they don’t get as much attention, but they’re more important. The Saudi oil fields are within range of Iranian missiles and, a proxy of Iran, the Houthis of Yemen attack some Saudi oil fields in 2019, disrupting supply significantly, even for a brief period of time. Do I think that that’s likely? Again, I don’t think so, but that will be far more devastating that anything happening in the Strait of Hormuz and to me, that is perhaps the worst case scenario that few are talking about.

Holder: So Javier, we’ve been talking about, some hypotheticals, what might come next, but right now we’re still sort of processing what happened over the weekend. What do the events of this weekend and potential further involvement from the US in this conflict mean for American oil production going forward?

Blas: What we know is that, um, American oil production was heading down because prices have dropped significantly. The US Oil benchmark a few weeks ago was changing hands used around $60 a barrel at that price point. American oil production goes down. Since then, because of all what has been happening in the Middle East, prices have recovered to around $75 a barrel, and that has a low shale companies to lock in future prices. And that means that probably American oil production is gonna be higher than we were expecting a few weeks ago, both in the second half of 2025 and also into 2026.

Holder: But shale is not an infinite resource. Right? And Trump has been very resistant to invest in green energy sources. What happens if oil production doesn’t keep going at the rate that’s expected? What’s the long-term plan here?

Blas: Shale is a great resource and America is extremely lucky with its geological endowment, but it doesn’t last forever, and you cannot increase production year after year and expect that that’s gonna continue, uh, for a very long time. At some point, American Oil production will reach a zenith, and uh, it means that, uh, perhaps if the demand remains at the current high level, that will imply that the United States will need to start importing a lot of oil, as it did 20 years ago, perhaps not as much, but potentially could. It could go back to the old days of 20, 25 years ago.