Israel-Iran conflict: No huge oil price spike - how the market outmanoeuvred worst-case scenarios - Explained

Oil markets swiftly reversed initial panic after Israel’s June 13 strike on Iran, with Brent crude falling back below $70 per barrel as traders sensed the conflict would not escalate further. Despite a brief $10 spike, the muted response from Tehran, including a symbolic missile attack that caused no damage, signalled de-escalation, calming fears of supply disruptions and showing how the global oil system proved more resilient than expected, as per ET.Before the Israeli strikes, Brent was already trading at around $69. Though US involvement over the weekend rattled markets, Iran’s symbolic missile attack on a US base in Qatar, which caused no damage, calmed fears. Traders viewed the move as largely domestic posturing, suggesting Iran wanted to signal resolve without provoking a wider conflict.“This rivals some of the historic selloffs,” said Tom Kloza, chief market strategist at Turner Mason & Co, after Brent tumbled on Monday. He added, “When the response comes and it is muted, oil drops,” as quoted by the news agency AP.The ceasefire announced Tuesday further eased concerns of supply disruption. The threat of Iran shutting the Strait of Hormuz, through which a fifth of global oil supply passes, loomed large, but analysts and US officials saw that scenario as unlikely. US Vice President JD Vance called the idea “suicidal,” reported AP. Tehran itself exports 1.5 million barrels a day through the strait, and closing it would have harmed its already fragile economy.According to ET, traders pointed to a recurring pattern in Iran’s military actions, strikes designed to appease domestic audiences rather than inflict serious damage. The broader context has also shifted as today's oil market is better insulated from shocks, with the US now producing about 13 million barrels a day, outpacing both Saudi Arabia and Russia.Meanwhile, OPEC+ production hikes since May have helped keep markets well-supplied. “The price of oil today, closer to $68 per barrel compared to $84 a year ago, reflects this cushion”. Strategic reserves, particularly in the US, offer additional buffers.Iran’s cautious behaviour stems from multiple pressures. Israeli strikes have weakened its military capability, and years of US sanctions have left its economy reliant on discounted oil sales to China. A prolonged war would jeopardise what little economic leverage remains.Regional dynamics have also shifted. With Hamas and Hezbollah weakened and Russia distracted in Ukraine, Iran’s traditional support base has eroded. Even China, though critical of Western aggression, has been reluctant to deepen its commitment to Tehran.Oil markets remain alert, but many believe Tehran is unlikely to provoke a larger crisis. “History suggests Iran won't disrupt its own oil flow,” said Houston-based analyst Andy Lipow. However, he added, “countries, like people, don't always act in their economic interests,” reported AP.For now, the market is betting that cooler heads will prevail, at least until the next flare-up.