On 12 June 2025, Israel launched a series of coordinated airstrikes targeting Iran’s nuclear facilities, marking a dramatic escalation in Middle East tensions. The strikes triggered immediate global market reactions, with Brent crude oil prices surging over 7%, reaching their highest levels since 2022.
The geopolitical shock reverberated through energy markets, as investors feared potential disruptions in oil supply from the Persian Gulf—a region responsible for nearly one-third of global oil production. Iran, which contributes around 3% of global oil output, could retaliate by targeting shipping routes like the Strait of Hormuz, through which about 20% of the world’s seaborne crude passes.
Earlier, oil prices were under pressure since the start of the year. The decline was attributed to a combination of factors like increased supplies from OPEC and Non-OPEC countries, rising US inventories, geopolitical tensions, and macroeconomic headwinds like weak manufacturing data from major economies.
The global oil supply remains relatively stable but nuanced. OPEC+ continues to enforce production cuts to support prices, although some members, including Russia, have increased exports, adding to global supply. Non-OPEC producers, particularly the United States, have also ramped up output, contributing to a well-supplied market.
On the demand side, growth has been tepid. As the global energy landscape continues to evolve, the crude oil demand forecasts for China and the United States—the world’s two largest consumers—offer critical insights into market dynamics.The U.S. economy is showing signs of cooling, with recent PMI data indicating a slowdown in manufacturing activity. Economic uncertainties, coupled with tariff pressures and lower oil prices, have dampened consumption. Additionally, the U.S. shale industry faces challenges such as rising breakeven costs and resource depletion in prime drilling areas.Despite its ongoing economic transformation, China is expected to see a modest increase in crude oil demand, projected at around 2% year-on-year. While Chinese equities have rallied and oil stockpiles surged by 8% earlier this month, weak industrial output and lacklustre PMI readings suggest that demand growth remains fragile.
The U.S. Energy Information Administration (EIA) has revised its global oil demand forecast downward by 0.5 million barrels per day (b/d) for 2025, citing weaker-than-expected economic activity and the impact of new trade tariffs. The agency forecast an even lower average price for 2026, reflecting expectations of continued supply growth and modest demand.
Other agencies and market analysts echo this cautious outlook. While seasonal factors such as summer travel and increased cooling demand in the Northern Hemisphere may offer short-term support, the broader trend points to subdued price growth.
Geopolitical tensions in the Middle East, and the Russia-Ukraine war have added a risk premium but have not yet significantly disrupted supply. However, if the ongoing Israel-Iran tensions are prolonged and Iran attempts to block key maritime routes, it could trigger major rallies in prices.
In conclusion, while the crude oil market is not facing an immediate crisis, it is operating under a cloud of uncertainty. The interplay of cautious demand, ample supply, and geopolitical risks suggests that prices will remain volatile but largely capped for the remainder of 2025.
(The author is Head of Commodities, Geojit Investments Ltd)
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