Iran War Breaks Out, Oil Risk Spikes, Here’s What Markets Are Watching

Strait of Hormuz Risk Is the Real Oil Story Right Now

As many people saw on Saturday morning, the bombing had already begun. The US and Israel said they believed Iran had become an immediate strategic threat, particularly because of its nuclear program and what they described as an imminent security risk.

This came after weeks of military buildup and rising threats from Trump, especially after earlier diplomatic efforts had failed. In simple terms, the talks were no longer working, tensions kept escalating, and the US and Israel ultimately chose military force instead of waiting any longer.

What makes this significant is that several Iranian officials who had previously been involved in negotiations were reportedly killed in the strikes. That adds another layer to the situation, because it suggests this was not just about targeting infrastructure or military capability, but also about removing key figures tied to Iran’s leadership and decision-making.

Among the names mentioned was Ali Shamkhani, the powerful former secretary of Iran’s Supreme National Security Council and a senior adviser. There were also claims surrounding Ayatollah Ali Khamenei, Iran’s Supreme Leader, being among those killed, which, if true, would mark an extraordinary escalation and a major turning point in the conflict.

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Why Oil Is the First Shock in a Middle East Conflict

When conflict breaks out in the Middle East, the first economic shock the market usually focuses on is oil. That is because the region remains one of the richest oil basins in the world, so any escalation immediately raises fears about supply disruption.

That is exactly what we are seeing now. Betting on prediction markets is pointing to a strong rally in oil prices this month following the attacks, which makes it likely that foreign and US oil companies could see a sharp move higher.

Polymarket is currently pricing in a 93% chance that WTI crude (CL1:COM) (USO) moves higher on Monday, which is hardly surprising given the backdrop. It is also pricing a 77% chance that oil finishes above $80 a barrel by the end of March. That is up 27 percentage points from before the weekend and would imply a gain of more than 19% from its current level of $67.02.

There is also still a 50% chance that crude ends the month above $90 a barrel, which shows just how seriously markets are taking the risk of further disruption.

Iran is central to why this matters so much. The country holds the world’s fourth-largest proven oil reserves, with around 170 billion barrels, or roughly 9% of global crude reserves. Just as importantly, it sits near the Strait of Hormuz, one of the most critical shipping routes for global oil flows.

That is where the real risk sits. The biggest issue is not just whether Iran produces less oil. The bigger concern is whether the conflict disrupts shipping through Hormuz. Reuters has reported that more than 20% of global oil passes through that chokepoint, and there have already been reports that some shipments were suspended.

In the short term, that is what the market will be watching most closely. If supply routes remain open, the spike in oil may cool. But if Hormuz becomes a genuine bottleneck, oil could move sharply higher very quickly, and energy stocks would likely respond just as fast.

Why Energy Stocks Can Jump, but Also Fall

The short-term story is really about war risk and what that does to oil prices, because oil remains the core economic value tied to Iran in global markets.

When conflict escalates, the market quickly starts pricing in supply risk. That is why oil can spike so fast. Investors are not just reacting to headlines, they are reacting to the risk that supply could be disrupted in one of the world’s most important energy regions.

But the longer-term story can look very different.

If the conflict eventually ends, and while the timing is almost impossible to forecast, it does seem likely this will not be resolved anytime soon, the market could shift from pricing scarcity to pricing more available barrels. That is where the narrative can completely change.

If we move toward regime change, sanctions relief, or a normalisation of Iranian exports, the oil market may stop focusing on restricted supply and start focusing on the return of additional production. The International Energy Agency said Iranian oil loadings were running at about 1.9 million barrels per day in late 2025 even under sanctions, which shows Iran is already a meaningful supplier even with restrictions in place.

That is why Iran can create major volatility in oil prices in both directions. War can push oil higher in the near term as the market prices in fear and disruption, but peace, sanctions relief, and a more normal export environment could eventually weigh on oil later by bringing more barrels back into the system.

Who Wins, Who Pays

So, the near-term impact is fairly straightforward. When oil supply falls, prices tend to rise, and that immediately benefits large-cap oil producers with significant production scale and inventory, such as Suncor Energy and Exxon Mobil.

Higher oil prices allow these companies to sell their output at stronger realised prices, which can flow directly into higher revenue and, in many cases, stronger earnings.