Recently, global markets have been experiencing a new wave of volatility, with prices rising sharply to around $70. The main driver of this growth has been the escalating conflict in the Middle East, which has once again threatened the stability of key oil routes.
Expensive oil is already having a tangible impact on commodity markets, global stock indices, currencies, and even the geopolitical balance of power.
This article will examine the reasons for the price increase and its consequences for various assets and economies.
Reasons for Price Increases
Oil prices are rising not only because of the conflict but also because of a whole range of interrelated factors.
Geopolitical Tensions
Of course, the main factor is the escalation of conflicts in the Middle East. The conflict between Israel and Iran is the most significant in this regard. It affects the key energy region of the Middle East, through which more than 20% of the world’s oil production and exports pass.
The Strait of Hormuz is critical. It is a strategic transport hub through which up to 20 million barrels of oil pass daily. The threat of supply disruptions (attacks on tankers, strikes on oil infrastructure, blockades of the strait) increases risk premiums and is instantly reflected in prices.
Traffic map through the region
Limited Supply
Growing geopolitical tensions are compounded by an existing supply deficit caused by OPEC+ policies. One of the largest oil exporters, Saudi Arabia, has voluntarily extended its oil production cuts. Russia is also maintaining export restrictions. OPEC+ is firmly committed to “price over volume,” with no rush to compensate for the deficit. In addition, the US is seeing a slowdown in shale oil production growth.
Speculative Demand and Capital Inflows
Against a backdrop of limited supply and geopolitics, institutional investors are beginning to take long positions on oil actively. The volume of longs in the market is growing, and prices continue to rise with it. Energy ETFs are seeing an influx of funds as investors seek to hedge against inflation and geopolitical risks.
This reinforces the upward trend in the market, with speculators becoming additional buyers in the context of limited supply.
Global Market Reaction
Rising oil prices affect all financial market segments, including the energy sector and the foreign exchange market.
Energy Sector
Oil prices directly cause the rise or fall of oil and gas company stocks. Against active oil growth, such stocks become attractive to investors. For example, the shares of large oil companies, such as ExxonMobil (NYSE:), Chevron (NYSE:), etc., are showing steady growth amid expectations of high oil prices.
Expectations for dividends and share buybacks are also increasing, especially for companies with strong cash flows.
Example of Chevron’s stock growth alongside oil price growth
Stock Indices
When oil prices rise, inflation rises, and the market falls. In other words, high oil prices are a significant driver of inflation, especially in the US and Europe. This usually leads to a decline in stock indices, especially those sensitive to interest rates, such as the and .
Corrections in European indices (, ) suffer from rising energy prices and increased risks of recession in the EU. Chinese indices are losing stability due to rising production costs and pressure on the . Rising inflation creates risks of monetary policy tightening, which hits growth stocks and the consumer sector.
Currencies
Rising oil prices are also having a profound impact on the currency market. The currencies of oil-exporting countries, such as Canada and its (CAD) or Norway and its (NOK), are strengthening, as both countries are oil exporters. At the same time, however, the currencies of importers (the , , or even the ) are falling as rising oil prices worsen the trade balance.
To sum up, oil is not just a commodity but one of the leading macroeconomic indicators. Its rise or fall triggers specific processes in all economic markets. In 2025, this connection will become particularly sensitive.
An example of a EURUSD decline during an oil price increase
Impact on the US
Let’s consider the US the most influential player in the economic markets. A sharp rise in oil prices usually has an ambiguous impact on the US economy. In terms of foreign policy, this strengthens Washington’s position, as the country is less dependent on oil imports and can provide itself with this valuable resource. However, domestically, this is a challenge for consumers, businesses, and even the stability of the political course.
Geopolitical Advantages for the US
High oil prices hit the largest consumers, both allies and competitors of the US.
- The European Union, which is highly dependent on oil imports, is facing rising energy prices. Germany, Italy, and France are particularly vulnerable. Their manufacturing sectors are suffering from inflationary pressure.
- China, the world’s largest oil importer, is facing rising costs and a weak yuan, which is exacerbating the economic downturn.
Against this backdrop, the US appears more stable thanks to its energy independence. At a time when others are in decline and crisis, the country can increase its oil and LNG exports. It can also strengthen its political influence over energy-dependent countries, including NATO allies and competitors like China.
- It is also important to note that the recent escalation of the conflict in the Middle East — particularly between Israel and Iran — could lead to an increase in the number of refugees. Countries north of Iran, including Russia, Azerbaijan, and Turkmenistan, may face new humanitarian and migration pressures. This could destabilize the region and increase political risks for these countries. This is also beneficial to the US, as the weakening of a strong competitor such as Russia could positively impact the country’s geopolitical strategy.
Internal Risks and Political Pressure
But everything has its price. Even the US cannot reap only benefits from such situations. Domestically, expensive oil carries significant risks. Rising gasoline, air travel, and logistics prices directly affect consumer inflation. Household spending on utilities is increasing, especially in cold states, which is causing social discontent. This is becoming a political problem for the White House administration, especially in the context of already existing internal tensions.
The Fed may also be forced to keep high for longer than expected or raise them again if gets out of control.
The US is balancing foreign policy gains and growing domestic economic costs, leading to discontent within the country. The oil shock caused by geopolitics could become both a source of strategic dominance and a factor of domestic political pressure.
Forecasts and Scenarios
The energy market is currently experiencing a period of heightened volatility. It is essential to be prepared for any outcome. The response may vary depending on how the conflict develops or is resolved. Here are the main scenarios:
Moderate Tension
Oil stabilizes in the range of $74–80 per barrel. This could happen if the confrontation continues without direct military attacks on infrastructure. In this case, the following should be expected:
- Moderate pressure on inflation
- The Fed keeps rates unchanged
- Energy company stocks remain strong
- Stock indices correct and follow the current trend
Decreased Tension
Oil returns to below $70. This could be due to diplomatic efforts, partial restrictions lifting, and normalizing supply flows. After that, we can expect:
- Inflation risks decrease
- The Fed begins to plan to ease rates again in the second half of the year
- Stocks recover
- Risk assets (bitcoin, emerging markets) get a second wind
Escalation of the Conflict
Oil prices rise rapidly and reach the psychological mark of $100, with possible spikes even higher. This scenario is likely in the event of attacks on tankers and other oil infrastructure, the blockade of the Strait of Hormuz, and the involvement of third countries. After that, we can expect the following:
- Accelerated inflation worldwide
- The Fed is returning to hawkish rhetoric, with a new round of tightening possible
- Indices falling by 10–15%
- Massive capital outflows from emerging markets
- Gold and safe-haven currencies are rising sharply
Forecast in the event of an oil price increase
The rise in oil prices is not just a matter of energy. Or the growth of a single asset. It is a complex process affecting many economic aspects, such as inflation, monetary policy, stock markets, and geopolitical balance. Depending on developments in the Middle East, oil could destabilize global markets. This has consequences for every country. And for investors, it is a clear signal that in 2025, commodities will again play a key role as an indicator of global risk.